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The National Bank of Romania (NBR) injected yesterday over 4.12 million lei in the banking market, this being the fourth repo operation conducted by the Central Bank in October, after the ROBOR index began rising at an accelerated pace.
The other liquidity injections this month have exceeded 1 billion lei (on October 23rd), of approximately 4.13 billion lei, (on the 10th of the month) and respectively, 9.3 billion lei (on October 10th).
These moves of the National Bank of Romania come as a few months ago, both the representatives of the NBR, as well as the representatives of the NBR, even the commercial banks claimed were saying that the banking sector is being flooded with liquidity.
"If we take the NBR's speeches a few months ago, we will see that the banking market was flooded with liquidity. Now, all of a sudden they find that there is no more liquidity in the market. It is very strange", said Cristian Pârvan, the president of the Professional Association of Romanian Domestic Investors (PIAROM), in an interview granted to BURSA.
As long as the NBR is injecting liquidity in the banking market, it is clear that we have a deficit they are covering up, points out Ionuţ Dumitru, the president of the Fiscal Council, who said: "We are no longer seeing the liquidity we used to have in the past months. Up until a few weeks ago, when it wanted to raise the ROBOR, in the monetary market, there was been a liquidity surplus - money placed by the NBR, in the deposit facility. The banks were placing money every day at the NBR, because they had no other investment destination. That liquidity surplus was very high. A year or two ago, the liquidity surplus in the banks exceeded 20 billion lei, in the beginning of this year it was about 15 billion, in August about 5 billion were left and in October it may have turned into deficit, in the context where the money exited the monetary market through several channels.
First of all, the Ministry of Public Finance (MFP) sold government securities and drew money from the banks, by borrowing, whereas the securities coming due and which the MFP repaid were rather small. Essentially, in summer, the MFP issued about 3-4 billion lei a month, whereas the securities coming due were less than 2 billion lei. Thus, in the end, the MFP withdrew about 2 billion dollars a month from the market surplus.
Also, large dividend payouts have been done, money which the state owned companies held in commercial banks. When the companies made payments to the state budget into the Treasury account, that money exited the monetary market. Thus, the liquidity surplus turned into deficit. The state and state-owned companies turned the liquidity surplus in banks into a deficit.
The money comes back when the MFP makes payments. But the two operations were bigger than what they usually were".
Ionuţ Dumitru estimates that in the coming period (November-December), it is expected that the Ministry of Finance to make very large payments, in the context where the budget deficit is expected to reach 3%: "In September, the deficit was 0.8%, which means that the MFP would inject 2.2% of the GDP in two months, money which would return to the money market again. The current deficit will probably turn into a surplus and we will see a liquidity surplus once again, but not to the extent that we have become accustomed to so far".
In the opinion of Mr. Dumitru, ROBOR will drop, but it won't go back to its previous levels.
PNL senator Florin Cîţu, the vice-president of the Budget Commission claims that the NBR made significant interventions, "taking money out from the market to support the leu". The MFP also drew liquidity, but it also made payments, according to the liberal senator, who told us: "We are talking about a monetary policy to remove liquidity from the market. The NBR brought the interest rates in the market to the level of the policy rate, by removing liquidity through several means".
Florin Cîţu expects to increase the policy rate to be hiked quite soon.
Should the analyses show it is necessary, that a liquidity deficit arises and that it can be solved, we may witness more such repo operations, after the first liquidity injection of the NBR, Adrian Vasilescu, strategy consultant with the NBR told us. "If we look at recent history, we will see that in 2012-2014 there were dozens of such interventions - there were 60, 70 operations in a year. They are being done openly, and the NBR reports each and every one of them", Adrian Vasilescu further said.
After the first intervention in the market, NBR governor BNR Mugur Isărescu explained that the tax receipts exceeded expectations, in which context bank liquidity decreased, which led to the rise of the ROBOR, which created the need for a liquidity injection by the NBR. In the opinion of Adrian Vasilescu, a good tax collection does not have to mean by default draining liquidity from the banking system, because it is a process that goes full circle, as the Ministry of Public Finances collects and spends, and the market gets regulated through this system.
As for the hike of the ROBOR, it was unavoidable, Ionuţ Dumitru recently said: "This needs to be clear to everybody. As long as inflation rises, and it will rise quite quickly, so will the ROBOR index. For instance, our expectations for the end of the year are 2.4% inflation, for the first quarter of 2018 - somewhere above 3.5% and over 4% for mid-2018. As such, it is unavoidable that the interest rates will rise. It would be a long debate on whether they will rise slowly or quickly, but the rising trend of the ROBOR in the next quarters is unavoidable".
The 3-month ROBOR, the index depending on which the interest rate for loans denominated in lei fluctuates, was 1.87%, down slightly from 1.88% - the level reached on Friday, October 27. 6-month ROBOR dropped from 2.03% to 2.02%, whereas 6-month ROBOR stayed at 2.08%, and 12-month ROBOR was 2.12% yesterday, down slightly from 2.13%.
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