Weekly Financial Focus - October 19th
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20 Octombrie 2011 |
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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
- 2012 budget draft in pipeline
- MinFin issues 2-year bonds
- BSE: Significant decline in the market liquidity
News & real economy
2012 budget draft in pipeline
Prime Minister Emil Boc said earlier this week that the cabinet completed a first draft of the 2012 budget, but the final version will be put before the Parliament after the IMF and EU provide both the economic growth scenario and budget deficit for next year. The European Commission will release the economic growth number for 2012 next week (October 24) and most likely the new scenario will be revised downwards, considering the ‘big challenges’ the international market is already facing. Boc specified that the draft currently in the pipeline is built on last summer’s economic forecasts for 2012 (economic growth: 3.5%, budget deficit 3% of GDP). A joint IMF/EU mission will come to Bucharest next week to perform the third economic review of the precautionary agreement in place. Previously, Deputy Director David Lipton expressed confidence in Romania’s capacity to meet the 2011 budget deficit target, but mentioned that fulfilling the next year’s target remains challenging.
Our opinion is that the 3% budget deficit (ESA95) set for next year will be difficult to reach, not least because Romania has to deal with a very large amount of arrears generated by state-owned companies. It is clear to the naked eye that the EUR 5bn equivalent arrears cannot be paid off in one year, especially as most state-owned companies are not even restructured. On the other hand, we recently lowered (as the IMF is also likely to do) the outlook for 2012 (1.9%, from the previous 2.9%), a year when the Romanian economy is no longer going to benefit from a plentiful crop in agriculture, after an excellent 2011. Last but not least, elections are nearing and this may open the door for overspending, while reforms could take a backseat. We see the budget deficit standing at around 4.2% of GDP (ESA 95) in 2012.
MinFin issues 2-year bonds
The MinFin sold 2-year bonds worth RON 800mn, as planned, at an average yield of 7.4%. This was the first issue of 2-year government bonds in 2011. At a September auction for 3-year bonds, the average yield stood at 7.49%. The issue was oversubscribed after investors put in bids worth RON 1.5bn. The MinFin's successful bond auction came after a 1 week repo transaction organized by the central bank (also on Monday), which drew interest from only two participants. The volume of liquidity provided by the NBR was RON 1.1bn at 6.25%. Although inflation recently fell into the central banks targeted range, we expect it to rise again next year. We expect the central bank to maintain key rates at a relatively high rate (6.25% in 2012) and foresee 5Y government yields stabilizing around the current level of 7.5% going into December before receding to 7.3% next June.
The MinFin is likely to tap again foreign markets (European or US) in November and an official with the Ministry said that US market looks more appealing at present, the main reason behind this being the investors' preference for longer maturities. Speaking about the local debt market, the MinFin official has specified that investors are turning a blind eye to 10-year bonds which is why the Ministry will focus on shorter maturities (<5 years). The representative has also said that the MinFin has an important liquidity buffer and expects yields to decline at the end of this year and beginning of the 2012.
FX, money market and FI
