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.
As the graph shows the RON appreciates in the first part of the year and then depreciates for the rest. There is also a degree of correlation with global market which have followed a similar pattern – equity indexes reached their highs of the year by April.
So far this year we are seeing the same behavior with low MM rates and MoF borrowing aggressively at maturities up to 1 year with real rates above 2%. In the same time global markets are following a similar pattern and I believe that by April the “optimism” from bailing out Greece will be tested by the reality of having to bailout more countries in Europe. But until then EURRON has a potential to move to 4.2. My view is that it will get there.