Romania’s 3-month ROBOR reaches fresh 4y4m high on liquidity shortages

Sorin Melenciuc 05/07/2018 | 11:21

Romania’s three month money market rate (ROBOR), the main indicator that sets the interest rates for RON currency borrowers, reached on Thursday a fresh record high of the last four years and four months of 3.39 percent, following the monetary policy meeting of the central bank, which decided to maintain the key interest rate. Experts say the sudden rise of money market rates are due to liquidity shortages.

The ROBOR 3M calculated for July 5, 2018, is the highest since February 26, 2014, National Bank of Romania (BNR) data show. The 3-month rate rose by 0.05 percentage point from the previous market session.

Compared with the end of 2017, the 3-month index rose by 1.34 percentage point (+65 percent), from 2.05 percent.

The central bank of Romania kept rates on hold at 2.50 percent, in line with experts’ call.

BNR governor Mugur Isarescu mentioned that monetary policy is firmer than suggested by the current rate level due to the positive gap between market rates and the key rate.

“Despite a hawkish message, given the outlook for core inflation, we put the chances of a hike at the next meeting at 30 percent unless the emerging markets sell-off intensifies. We think a hike is more likely at the October meeting and still see the peak of the current cycle at 3.25 percent in 3Q19,” ING Bank analysts said in a research note.

The 3-month ROBOR index reached a record low of 0.68 percent in September 2016.

The 6-month ROBOR index increased from 3.39 percent to 3.46 percent on Thursday, the highest level since March 21, 2014.

Liquidity shortages

Economists say that the rise of Romania’s money market rates is due to liquidity shortages.

“Of course, some tax or dividend payments or other Treasury operations (including retail bonds issuance?) may have also had an influence, but the disappearance of 16 bln RON worth of liquidity surplus in a matter of 2 months cannot be fully explained by those. We therefore have no choice but to suspect central bank interventions in the FX market,” Erste Group analysts said on Tuesday in a short research note.

Romania’s central bank had weekly open market operations during the last couple of months, absorbing excess liquidity in the market. On Monday, Romania’s central bank did not absorb liquidity through one-week deposit tender.

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