Romania’s 3M money market rate reaches 3.5 year-high for third day in a row. Analysts: Growth will continue, but it will slow down

Sorin Melenciuc 26/04/2018 | 11:48

Romania’s money market rate (ROBOR), the main indicator that sets the interest rates for RON currency borrowers, reached on Thursday a 3.5-year record for a third day in a row, of 2.46 percent, National Bank of Romania (BNR) data show. Experts say the increase is normal and forecast further rises until the end of the year.

The ROBOR 3M calculated for April 26, 2018, is the highest since October 23, 2014.

According to Horia Braun, chief economist at BCR, the biggest bank in Romania, the growth is temporary. “After the NBR decided to absorb the excess liquidity from the market by offering banks the possibility to place their liquidity surplus in 1-week deposits with the central bank, it is normal to have inter-bank interest rates respond by going up, especially that they had been trading for the low maturities of ON and 1 week much closer to the depo facility of 1.25% than to the policy rate of 2.25%. I would expect this adjustment to be a more gradual one and this was probably the case until yesterday when on top of this issue we had the regular tax payments kicking in, when tax paying customers’ accounts are debited to make the payments to the budget and there is a corresponding equivalent reduction in banks’ liquidity”, he explained.

In his opinion, if tax payments are larger than estimated, banks’ liquidity buffers may diminish more and a few of them may bid in the market for short-term funding, which is enough to drive interest rates higher. “I nevertheless see this as a temporary phenomenon, because on the one hand, on Monday the central bank deposits will expire and banks can replenish their buffers and on the other hand, the money from tax payments will gradually come back in the system when the government make its expenses. The only thing that may cause a worry is if on top we would have some foreign capital outflows, but that doesn’t seem to be the case right now, otherwise we would see a significant RON weakening in parallel”, the analyst added.

Compared with the end of 2017, the 3-month index rose by 0.41 percentage points, from 2.05 percent.

On Tuesday and Wednesday, the ROBOR 3M reached 3.5-year high-levels of 2.28 percent and 2.42 percent, respectively.

Analysts say the 3-month money market rate should be above the central bank’s policy rate (currently 2.25 percent).

The Romanian central bank had two open market operations durind the last two weeks, absorbing more than RON 18 billion (around EUR 4 billion) each week from the banks through deposit tenders.

BCR’s chief economist estimate the 3-month money market rate will continue to grow until the end of this year, approaching 3 percent, if BNR rises the monetary policy interest rate to 2.75 percent in 2018.

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

The 6-month ROBOR index increased to 2.57 percent on Thursday, from 2.54 percent on Wednesday.

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