The Finance Ministry is planning to borrow for seven years from the domestic market in 2004, after consolidating the three-year maturity this year. At the same time, the interest rate-cutting strategy will continue.
"The state-issued bonds maturing in three years will come to account for 12% of the Finance Ministry's portfolio by yearend," Enache Jiru, Finance Ministry's state secretary in charge of the Treasury told Ziarul Financiar. The large amounts of cash available on the Romanian market encourage the prospects of the first five-year bond issues somewhere by the end of 2003, while 2004 is set to be the seven-year maturity year.
Maintaining the liquidity of the market and the increase in maturities, fewer and fewer issues on the international markets, given the decrease in the interest rates on the domestic market, more investors on both the domestic and the international market. These are the main targets of the Finance Ministry when it comes to the public debt management.
The Ministry last week released the first ROL-denominated bond issue maturing in three years.
"This is a very good start, yet the 12.5% interest doesn't say a thing about how sustainable this maturity really is. One cannot jump to conclusions, as there have to be more three-year issues first," Enache Jiru said.
It is hard to say how quick will interests continue to go down for the time being, so that the banks favour longer maturities, which guarantee a certain stable interest level.
"We cannot send out any signals to the market as the year has just begun, but the steeper the inflation decline towards 13% becomes, the more it will show in the interests rates," Jiru explains.
The first ROL-denominated bond issue maturing in three years had an insurance company offering as little as a 10.7% interest.
"The high demand for three-year bonds shows us the investors are confident in our inflation curbing prospects and I think the interest will be real positive: they will preserve the value of their money and gain something, too," the head of the Treasury says.
Still, the Finance Ministry is not concerned with the high liquidity on the monetary market, which has come to be twice higher than the fiscal deficit funding needs.
"The Finance Ministry will not borrow beyond its needs, because it is not its job to take care of the cash surplus on the market," Enache Jiru said.
Actually, it is precisely the high liquidity level on the interbank monetary market that helps the Finance Ministry continue its interest cutting strategy. It cannot but take advantage of the cash surplus sustained by the limited interbank investment options and particularly by the yet low amounts the banks set aside for credits.
A quick development of the lending market would pose a risk to the Finance Ministry, which might find itself engaged in a battle with the banks over the cash on the market. This is why the Ministry keeps borrowing from the international markets to finance the deficit, as well, which prevents the Treasury from becoming totally dependent on the domestic market, therefore risking to lose control of the interests direction.
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