EURRON to 4.2 by end of March?

In recent years the Ministry of Finance has used the first quarter to borrow most its funding needs for the year. The signal was given by very low rates in the money market at short maturities. With low funding costs and still high real interest rates the demand for Romanian debt at maturities up to one year was strong from both local and foreigners. One collateral effect of this is a stronger RON in the first part of the year.

NBR’s decision mostly irrelevant unless you are a bank or the Government

I admit NBR surprised me today. I did not think it had the balls but most of it I thought it cared more about the real economy than about the political shenanigans. The only immediate effect of today’s decision is an instant 25bp profit for local banks financing the Romanian government debt. Of course, there is hope from the NBR that such a favor will be returned and local banks will continue to fund the increasing local debt at a lower rate. As this all happens at very short maturities the effect for all of us is that we will have to pay for it through higher taxes in the future.

Another look at the Romanian money market

Within free markets you can gauge the money market conditions by looking at the interest rates.  Today, really free markets are fewer and fewer. Romanian money market was never that free as the NBR has always had a strong grip on it.