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BNR interventions to temper leu depreciation drain market liquidities

Romania's National Bank (BNR) interventions to temper national currency leu's depreciation, drained liquidity from the market, discouraging speculators.Thursday, October 16, the lack of lei on the inter-banking market has pushed up short-term interest rates to 30 percent, but specialists consider that there is potential for significant further increase, under conditions in which at the end of the month the banks have to make important payments to the state budget.

As well, the Ministry of Economy and Finance needs higher lei amounts during this period to finance the budgetary deficit, the government securities issuance in the fourth quarter totalling 7 billion lei (some 1.85 billion euros).

Lei drought was also induced by BNR through foreign currency buying to temper leu's depreciation. According to specialists, in the end, circumstances favor leu because the foreign currency speculators do not have access to liquidities in national currency which would enable them to proceed to large-spanning attacks as, for instance, against Hungary's national currency, forint.

'Further increase of the interest rates potential remains high. It is hard to say where the interest rates will go as long as BNR does not intervene by injecting lei on the market', Nicolaie Alexandru Chidesciuc, ING Bank senior economist is quoted as saying by Ziarul financiar daily.

On October 25, the companies must make important quarterly payments to the state budget, this being one of the moments when, traditionally, liquidity demand follows a strong upward trend. For instance, in May 2007, short-term interest rates climbed to 40-50 percent per year after the banks were caught on wrong foot by the payments to the budget at the end of April and their lei reserve was exhausted.

'Local banks do not have important liquidity needs, lei demand usually comes from foreign speculators', remarked Dragos Balaci, head dealer with Royal Bank of Scotland Romania.

Chidesciuc also said that foreigners will start selling euros in order to close their positions because they can no longer finance them and some are to close their positions probably at a loss, especially those who entered the game at quotations of more than 3.8 lei per euro.

Steven van Groningen, Raiffeisen Bank President, stated that it is very hard to say how the interest rates will evolve and the level they will attain. 'We wait for stabilization on markets abroad, but anyhow a right move would be to reduce dependence on the external funding, given the turmoil', said van Groningen. Raiffeisen Bank President explained that there is the possibility to grant loans directly from abroad, but he mentioned that this is not a priority, depending on the market's evolution. 'I do not think that local players will be very aggressive on the loan giving side', appreciated van Groningen.

Till Thursday, October 16, BNR did not inject liquidity on the market, limiting its interventions to the forex market. In the past year and a half the Central Bank had several interventions in order to inject lei.

Speculators' lack of choice to continue bets against leu was seen on Thursday, the quotations on Bucharest market being relatively stable, whereas the currencies on the emerging neighboring markets registered consistent losses as against the euro.

Dealers say that this time BNR did not intervene on the market, but simply speculators did not have enough lei to sell in order to push the exchange rate upwards. In Bucharest euro stagnated at the official rate of 3.77 lei.

ING economist remarks that, even though on the short-term one can understand why BNR allows interest rates increase aimed at protecting leu, keeping on those rates at very high levels for a longer period could prove dangerous.

On one hand, raised interest rates can induce a shock in the economy. On the other, high level interest rates can attract speculators who would bet on an excessive leu's strengthening, as it was the case in the summer of 2007.

Bankers reject the idea that banks would deliberately postpone loan giving and say that a slow down in this pace might be caused just by the introduction of the new regulations or by clients' vacillations, especially in the case of mortgage loans.

Sergiu Oprescu, Alpha Bank CEO is quoted by the newspaper as saying that delays are caused almost unanimously by the incomplete files or clients' indecision. Petre Bunescu, BRD vice-president, says that a series of applicants for mortgage loans decided to freeze their requests and wait and see if they can get a better price.

 

Sursa: http://www.actmedia.ro

Tags: bnr interest rates market currency depreciation interventions temper brd bet ing euro

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