Quick Note on the REPO stand-off

Banks want more, more, more (think of Billy Idol song)

Fear of capital flight makes NBR a stingy central bank. For the REPO operation today the local banks were looking to borrow 24 billion RON (blue line) at 5.25% for 7 days. The NBR saw through that and only accepted 6 billion RON worth of RON denominated bonds.

It is just a coincidence?

There is one relationship among economic variables that works well over time in Romania: M1 and the EURRON.

Where did 21.3 billion euros go and how will Romania replace them?

National Bank of Romania published yesterday the latest data on foreign reserves. At the end of February they stood at 33.3 billion Euro. A comforting number for a small country like Romania. But what is behind this number?

To reach its potential Romania needs to “relax”

I am not a fan of “output gaps”, this measure of how much are resources in the economy employed. But central banks all over the world use it and thus we have to at least mention it.
In theory an output gap shows how far is the economy from its potential. A positive gap means that current GDP is above its long term potential while a negative one shows that the opposite.

NBR’s rate correlation with real economy rates is at best spurious

One theme I keep repeating is that the credit channel is not working in Romania ans will not be working as long as the central bank is focused solely on the exchange rate.
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Current way of injecting liquidity will not lower long term rates

NBR delivered another rate cut today from 5.75% to 5..5%. It is the third consecutive cut in the key rate and a good moment to see how has this easing cycle transferred into the real economy. The main question is if these rate cuts get to the real economy. As you will see not immediately and definitely not via lower interest rates.
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