Promising start of the year: RON up, interests and risk premiums down

The start of the year brought an unexpected breath of fresh air for the interbank market, with the RON strengthening to 4.17 RON/EUR, the best level achieved since last spring, while banks lowered the interest rates they charged for loans to each other, and the risk premium charged abroad to insure Romanian bonds has gone down, reflecting a better perception of the Romanian economy by foreign players.

However, the economy is still in need of substantial funding at lower costs to be able to come out of the worst recession after 1989. For now, bankers have their reservations and say more steps are needed to unfreeze lending in RON, despite the signal sent by the NBR at the beginning of the week with the cut in the key rate by half a percentage point to 7.5% per annum.

“The start of the year was better in terms of volume than the fourth quarter of 2009. We saw more interest from foreign players. I think the first part of the year will be good for the RON and I expect to see the euro trading at as little as 4 RON,” commented the dealer of a bank in Bucharest.

Interests on the interbank market have gone down quite a lot, to meet with NBR’s key rate, at 7% to 8% a year, from 9-10% only days ago. Bankers, however, warn that cash injections will be needed soon if the NBR wants to keep interest rates low, given that the Finance Ministry continues to aggressively absorb funds to cover the huge budget deficit.

Good news came from international markets, as well, where the risk premium for insuring Romanian bonds (as reflected in the credit default swap quotes) fell to the levels before the political crisis that started at the end of September. This means local banks can get cheaper money from abroad, which translates into lower interests on loans in euros granted to clients.