Interest rate cuts by the NBR on Wednesday have thrown the monetary and forex markets into disarray. The RON lost a lot of ground against the euro yesterday, after players started to buy foreign currency, with RON interest rates having reached 0.75% a year, thus yielding less than the foreign currency.
Interests on the monetary market collapsed to 0.75-2.75% a year for overnight deposits, given that the central bank had not purged the excess currency and decided to cut the interest rate on the deposit facility to 1% a year mid this week. This was the last option banks had to place their RON surplus at better terms.
Amid a drastic fall in rates, players sold massive amounts of RON on the forex market, which led to an appreciation of the euro to 3.5850 RON. One euro was worth 3.5170 RON at NBR rates yesterday, 2.89 bani (100 bani equals 1 RON) less than the previous day, the highest level reached by the European currency since the end of August. The dollar in its turn gained 2.23 bani, reaching 2.8796 RON.
"The heaviest impact of the interest paid to customers is that of the sharp cut in the deposit facility interest.
"The first hit by this reduction are the non-resident investors that used to generate a large part of the excess liquidity and whose funds were placed in the deposit facility. They are now getting a negative yield, whilst the interest on euros is better. Therefore a large part of the purchases of foreign currency may come from funds that are exiting the market," says Dorin Badea, Bancpost head dealer.
The purging interest rate at the moment should be regarded as an average of rates on the facility and that on the monetary policy, given that small amounts have been taken for one-month deposits (no more than 35% of the total supply) lately, Badea adds. Dealers say that since the RON will not see any significant appreciation against the euro, yields of the foreign currency deposits will be significantly higher than those for deposits in RON. This means the massive sales of foreign currency on the market seem to have stopped, at least temporarily, since players have no way of investing the RON obtained in this way.
On the other hand, commercial banks are in no rush to announce spectacular declines in financing in RON and are waiting to see the "market''s moves." Bankers say placing excess liquidity put at 4-5bn euros in loans to customers is neither possible nor prudent over such a short time, even though rates on RON were to go down visibly. Investing the excess RON in loans would translate into a surge in the non-governmental lending, which had reached 14.5bn euros in July.
"Yesterday''s move is a clear outcome of the rate cutting policy of the central bank. All those who had placed their bets on RON were forced to close their positions by successive foreign currency purchases, and the exchange rate reached 3.58 RON/EUR. The RON depreciation trend will continue, though we may see some adjustments," says Aurelian Mihailescu, a Raiffeisen Bank dealer.
The forex market closed at 3.4880/3.4930 RON/EUR. Players bought euros almost constantly throughout the trading session. At noon, the NBR calculated the official exchange rate, with the euro reaching 3.5130/3.5180 RON. Half an hour later, the euro had appreciated to 3.5360/3.5430 RON. It had reached 3.5750/3.5850 RON by the end of the trading session, one of the highest levels since July. liviu.chiru@zf.ro
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