Weekly Financial - September 3rd
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8 Septembrie 2010 |
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BANCA COMERCIALĂ ROMÂNĂ S.A. |
Adresa
Bulevardul Regina Elisabeta, Nr. 5
Bucureşti, Sector 3
Telefon
+40-21-314.91.90
+40-21-312.61.85
Fax
+40-21-310.02.46
+40-21-311.18.19
Website
www.bcr.ro
News
Government reshuffled
Prime Minister (and leader of the Democrat Liberal Party) Emil Boc had a meeting with the Democrat Liberal MPs and presented two alternatives – a reshuffle or the resignation of the entire government. The Democrat Liberal MPs finally voted for a reshuffle of the government. Soon after that, the PM met with President Basescu to agree on the positions within the government subject to the reshuffle process. The final decision was the replacement of six ministers, including those of finance, labour, economy and transport. Some of them were directly involved in the process of implementing tough austerity measures during the last few months, so this decision could be seen as an attempt to restore public confidence in the government.
At the same time, it could be a political strategy of the ruling coalition to counteract the decision of the Social Democrats and Liberals to initiate a no-confidence vote against the government later in the autumn. Besides the Democrat Liberal Party, the present government is supported in the Parliament by the Democratic Union of Hungarians in Romania and independent MPs. The political relations within the ruling coalition remain strong, as no minister supported by the Democratic Union of Hungarians in Romania or the independent MPs were replaced. Against the backdrop of these political developments, the RON depreciated to a two-month low of 4.29 on Friday morning. We see limited room for a strong weakening of the RON at present, as the NBR will stick to the strategy to reduce the volatility of the EURRON rate using its FX reserves of EUR 31.5bn. On the occasion of his first public statements, the new minister of finance expressed a strong commitment to the IMF stand-by arrangement, which is seen as a top priority for Romania. For the time being, we maintain our capital market forecasts and will carefully monitor the developments on the political stage.
Retail sales sagged in July
After two consecutive months of growth, retail sales dipped 6.5% m/m in July on negative trends in food and nonfood products. Fears induced by the austerity moves in the public sector which became effective as of July 1st may have affected consumers' behaviour. However, fuels managed to inch up in July (+0.9% m/m) and this was probably due to the summer holiday. In the first 7m10, retail sales were down 4.9% and there are pretty high chances to remain negative in the remained of 2010. Local managers anticipate a moderate decline in retail sales during August-October and this will negatively impede recovery process of the Romanian economy.
MoF rejects all bids at tender to sell 5Y bonds
The officials signaled again they are not ready to pay yields above 7% and rejected all bids at a tender to sell 5Y bonds worth RON 300mn. Investors submitted total bids worth RON 459mn. Earlier this week, the minister of finance said that the financing needs for the rest of this year, excluding the euro-denominated T-bills due in November, are estimated at RON 15bn. He expects the pressure on government yields to ease once austerity measures bear fruit and considers Romania's financing situation comfortable in the context of the next disbursement from the EC (EUR 1.2bn in September) and the upcoming issuance of euro mid-term notes. The MinFin will continue to issue 80% of debt on short-term and only 20% on long-term in the near future. In October, the officials will discuss a potential new deal with the IMF and EU. In our opinion, a continuation of the agreement with the IMF after 2011, possibly through a precautionary stand-by arrangement, is positive news for the capital markets and creates the conditions for a successful issuance of euro mid-term notes in the next few years. Considering all of these factors, the 5Y government yield should decline to 6.8% next June.
Real economy
Industry remained the main mitigation driver of the GDP fall to -0.5% y/y in 2Q10 helped mainly by hefty external demand; a positive surprise was agriculture which entered the positive zone in the second quarter (+0.7% y/y); construction and indirect taxes moderated their fall in y/y terms, while trade & services remained stuck at -2.2% y/y in 2Q10; on seasonally adjusted terms, GDP advanced by 0.3% q/qin 2Q10 with industry leading the way (+4.2% q/q)
