Weekly financial focus

4 Septembrie 2011

BANCA COMERCIALĂ ROMÂNĂ S.A.

 

News & real economy

Confidence in industry withering away

In August, the economic sentiment indicator released by the EC for the Romanian economy fell 1.3 points to 92.3. Confidence in industry worsened for the fifth month in a row, due to lower external demand from traditional Eurozone partners and still depressed domestic demand. Sentiment in retail trade, construction and services also declined, while confidence among consumers brightened a little. This should be no surprise, given the very pessimistic approach of Romanian consumers after last year’s cuts in public wages and social allowances, which leave plenty of room for improvement.

The recent evolution of the construction licenses issued for residential buildings (-9% y/y in July) shows that a revival of the residential segment is unlikely in 2011-12. Construction work will continue to be supported only by private investments in new production facilities in manufacturing and in modern retail trade, as some top global players announced their expansion plans in Romania. At the same time, the support offered to the construction sector by public investments in infrastructure will be of paramount importance in the coming quarters. Our new scenario shows that the NBR will keep the key rate flat at 6.25% in 2012 to counterbalance the negative effects of weak foreign and domestic demand. An improved inflation outlook in the wake of slower global growth should also make the NBR more comfortable with a flat key rate in an election year.

Romania to again tap global markets in 4Q11

This week, the MinFin rejected all bids at a tender to sell 5Y bonds worth RON 500mn, as investors kept asking for higher yields. Worries about sovereign debt problems in the Eurozone seemed to weigh pretty heavily, in spite of the visible results of the fiscal consolidation program followed by Romania and an improved inflation outlook for the coming quarters. The deputy finance minister said that Romania is ready to issue EUR-denominated or USDdenominated debt on the global markets in 4Q11, if market conditions are favorable. Until then, the officials will continue to work on legal procedures that will enable the MinFin to issue USD-denominated paper. In June, Romania sold 5Y EUR-denominated bonds worth EUR 1.5bn at 5.298%, as part of a three-year medium-term notes program worth EUR 7bn. US investors bought 20% of the entire issue at that time, while UK and Irish investors also showed high interest and purchased around 30% of the total bonds.

The MinFin’s strategy to diversify the funding resources for the financing of the budget deficit and the refinancing of the public debt also includes a stronger focus on long-term RON-denominated paper issued on the local market, at the expense of 6-month T-bills, which were rather common in the past. This approach could be successful if Romania continues its fiscal consolidation efforts under the agreement with the IMF and EU and avoids a significant fiscal slippage ahead of the 2012 elections. Romania’s public finances are in much better shape compared to other EU countries and the significant adjustment of the budget deficit was supported only by ambitious structural reforms, with no role played by economic growth.

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The tricky lag LUCIAN CROITORU Adviser to the Governor - BANCA NAŢIONALĂ A ROMÂNIEI Lucian Croitoru, Adviser on monetary policy issues to the National Bank of Romania Governor, talks about the NBR’s next moves and explains why the decrease ofthe policy rate hasn’t been reflected into lower interest rates on bank loans. mai mult... The turnaround CRISTIAN SPORIS Secretar de Stat - MINISTERUL ECONOMIEI ŞI FINANŢELOR Cristian Sporis, Secretary of State at the Ministry of Public Finance, in charge with the national treasury and public debt, explains how the state managed to borrow money at the lowest costs in the last seven years and how it turned from a clear market taker into a player with a strong position on the market. mai mult...