At the end of last week the Finance Ministry turned to the domestic market to cover its temporary cash needs, and raised no less than 1.9bn RON (517m euros) from domestic banks, in a one-week deposit with an annual interest rate of 9.75%.
Traditionally, the ministry makes such moves in the first few months of the year, when budget revenues are low, in order to cover liquidity shortages.
The NBR also uses seven-day deposits to absorb excess RON from the inter-bank market, with the same 9.75% annual interest rate.
"This is a good move for the Finance Ministry. Given that in the case of government securities the yields required by investors went beyond 10% per annum, securing short-term loans at lower costs is a solution to cover liquidity crunches," comments Lucian Anghel, chief-economist of BCR.
In recent weeks, the level of monetary market liquidities had been quite low, with the situation also reflected by banks' very low interest in placing money with the NBR. However, toward the end of the week, the volume of RON on the market had climbed.
Minister Varujan Vosganian explained that since May there has been a shift from a budget surplus to a budgetary gap.
The deposit raised by the Finance Ministry will mature on June 23rd, right on the last day of the current period of minimum compulsory reserve set-up, when liquidity demand from banks could surge.
The Finance Ministry will have to make important payments at the end of this month as a eurobond issue worth 664m euros is due on the 27th. Nevertheless, last week's move, by which the Ministry launched a 750m-euro eurobond issue, came as a surprise.
The interest was set at 6.5% per annum. The bond's yield stood at 6.69%, above the yields at which the other series of Romanian eurobonds are traded.
Private pension firms do not intend to invest in the eurobonds the ministry launched last week. Mandatory funds' managers say their prefer RON-placements in order to avoid foreign currency risks, against which they do not have any tools. Pension funds can invest as much as 70% of their assets in government securities issued by the finance ministry or other EU states.
Pension funds cashed in the first customer contributions on May 20, with their value standing at almost 88.2m RON (24.1m euros).
Most managers preferred to place the largest part of the money in banking deposits, taking advantage of a Private Pension Commission derogation, allowing for the 20% threshold for these investments, stipulated by law, to be exceeded for six months.
"We prefer RON investment because the Romanian currency is still highly volatile and we can lose at any time should it rise against the euro. The foreign currency risk is high," maintains Radu Vasilescu, general manager of ING Fond de Pensii.
Liquidity crisis
At the end of last week the Finance Ministry resorted to the domestic market to cover its temporary cash needs, and raised no less than 1.9bn RON (517m euros) from domestic banks, in a one-week deposit with an annual interest rate of 9.75%.
The deposit raised by the Finance Ministry will mature on June 23rd, right on the last day of the current period of minimum compulsory reserve set up, when liquidity demand from banks could surge
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