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.