Banca Naţională a României

After overcoming at end-March 2020 the peak of tensions generated by the COVID-19 crisis on the domestic financial market, the NBR’s immediate objective was to preserve the regained stability and provide the necessary liquidity for the smooth financing of the public and corporate sectors, as well as of households. To this end, the NBR significantly increased the volume of bilateral repo operations (the average daily stock of which reached approximately lei 13 billion in the period from 1 April to 15 May 2020) and started and thereafter continued purchasing government securities on the secondary market (their stock totalling lei 3.1 billion at mid-May). The size of these liquidity injections is also highlighted by the fact that, in February 2020, the NBR conducted liquidity-absorbing operations, whose daily average stood at around lei 3 billion. After the downward adjustment recorded in response to the monetary policy rate cut from 2.50 percent to 2.00 percent, the 3M ROBOR rate declined from 3.24 percent (20 March 2020) to 2.61 percent (23 March 2020) and subsequently to 2.44 percent (15 May 2020). At the same time, the EUR/RON exchange rate saw lower fluctuations, in a narrow range of 0.4 percent, which had favourable implications for the debt service in foreign currency and the cost of imports, as well as for the expectations on macroeconomic developments.

Against this background, in the period from 1 April to 15 May, the Ministry of Public Finance successfully launched 14 issues on the domestic primary market for government securities, totalling around lei 11 billion, most of which were markedly oversubscribed, especially those in the first part of May. Reference rates on the secondary market for government securities have followed a steeper downward path since the beginning of April up to now. Thus, looking at maturities of up to 1 year, they have recently returned to the vicinity of the values prevailing prior to the outbreak of the global financial market turmoil. The rates for the 10-year maturity have remained only 0.5 percentage points above the levels recorded in the first 10-day period of March, while declining 0.15 percentage points versus December 2019. On the primary market for government securities, the advance of the average accepted rates at the latest auctions compared to the period immediately preceding the outbreak of financial tensions diminished to about 0.5 percentage points in the case of securities with a residual maturity of approximately 11 years (4.77 percent rate) and to 0.25 percentage points for 5-year securities (3.82 percent).

Looking ahead, the immediate objective of the National Bank of Romania is further to ensure the necessary liquidity for the financing of budget expenditures and of the real economy amid the relative stability of the leu’s exchange rate and the gradual and sustainable cut in interest rates. We will monitor developments in the public health situation and in the measures taken by the authorities so as to adopt adequate decisions. The Inflation Report for 2020 Q1 will be released at the end of this month.