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.

There have been few signs of strains in the money market in Romania but as one that has been part of the “game” I know that this information is very sensitive.  Money market offers funding to local banks and if that markets dries up then few banks might be left ”

To get a feel for the market I looked at the daily volumes in the money market.

The first graph shows the daily volume of the money market since 2008. It is clear that there is big drop in volumes starting with October 2008. I have talked about this before and besides the NBR draining liquidity I think part of it was also increased demand for cash holdings.

The second graph shows the daily volumes in the money market for 2011. It looks like there was a stable average until August 2011, the time when European sovereign debt crisis began to really get the attention of the markets.

Finally, the third graph, shows just the period since August 2011 to today. It is clear that the volumes are getting to historical lows showing that the money market is actually not working in Romania.

Only since August the daily volumes have moved on average from 5000 million RON to only 2500 million RON.  This is not enough to fund the local RON assets let alone finance an increase in lending in Romania. It is the job of the NBR to keep this market liquid as the functioning of the money market is the first thing a working Inflation Targeting regime needs.

One more thing these graphs are showing: a smaller and smaller Romanian economy.

One thought on “Another look at the Romanian money market

  1. Like.

    But I don’t agree with you that we don’t have a free mm as the NBR does things around, there.

    I could saw from 2005 and untiil now that usually there’s a difference between robors and the NBR rate, and sometimes there’s actually a big difference, 2%-4% for months, which shows, if you ask me, that NBR doesn’t make enough operations in the mm, is not a player in the market almost at all. They actually don’t seam to intervene there.

    Even when they retreated money in oct 08, because of a potential speculative attack, as far as I know they did this by an intervention in the fx, and of course that taking ron from the fx market affects the mm also.

    So I consider Romania to have a very very very free money market, is freak how free is our market, actually. Mostly taking into consideration that NBR was supposed to do inflation targeting using the interest rates, as you pointed out, and it is true.

    I think this decrease in volume shows that the crediting activity for ron denominated loans is not working, which is dangerous for the economy, right now. Probably this is why they don’t trade too much with each other lately. Plus, they come after a period of lack of loan crediting, so I suppose they don’t need to much refinancing.

    So, under my opinion the situation is the reverse. The mm is working too freely, NBR is not a player in the market, unfortunately for all of us.

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