The state has apayment peak in July and dealers say it might have to pay 8-9% inyearly yields if it wants to borrow as much as it needs.
The FinanceMinistry is seeking to borrow 4.6 billion RON (slightly over onebillion euros) from banks in July, considering it needs about threebillion RON to pay for T-bills maturing this month. In addition,the state also has to repay 700 million euros for some eurobondsfalling due.
A tough battle overyields is thus taking shape, after the Treasury could afford to"twist the arm" of the banks in June, keeping yields on RON at lessthan 7% a year, at the cost of raising only one quarter of what ithad set out to. Last month, Finance Minister Sebastian Vladescustarted to talk about pressures from banks, which demanded yieldsin excess of 7% a year. Meanwhile, things have become morecomplicated as far as the Finance Ministry is concerned, with theConstitutional Court ruling against the pension cut, which led tothe need to raise VAT from 19% to 24%, which hurts the economydirectly. Unless something comes up, the IMF Board should approvethe fifth tranche of the loan for Romania, worth 900 million euros.This money goes into the NBR reserve, though, so that the FinanceMinistry has to raise cash from the market.
The only help forthe Finance Ministry might come from the NBR, which might leavemore RON the market, to keep interest rates down. The NationalBank, however, is now in a difficult position, as it has to copewith the pressure towards a depreciation of the RON.
"How high the yieldon T-bills will go depends on the exchange rate trend, on theextent of RON's depreciation. If there are pressures on theexchange rate and it reaches 4.4 or 4.5 RON/EUR, then the yields onT-bills could go up to 8 or 9%. If not, the central bank will tryto leave some cash on the market for the Finance Ministry toborrow," a dealer commented.
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