Report: Inflation evolution and the uncertainty generated by the government crisis are factors with highest impact on financial market

The evolution of inflation and the uncertainty generated by the government crisis were factors with the highest impact on the financial market in Romania in the last month, according to a report of the Financial Market Association.   “In the past month, factors with highest impact on the financial market in Romania were inflation evolution and the uncertainty generated by the government crisis. As for monetary policy, market expectations are that the National Bank of Romania should maintain a monetary policy interest at the present level (1.25%) this year, although there are opinions that we could see a 25% increase in November. For 2022, the local market expects 2 or 3 increases of the key interest rate, reaching 2% at the end of the year,” the report shows.   According to the source quoted, the profit curve recorded slight increases in the inter-banking monetary market in the past month. In the deposit market, where transactions of up to week are recorded, the interest rate average was by 5-10% higher. This tendency is encouraged by monetary policy operations organized constantly by BNR. We can see that market transactions are higher, for a longer period ) with monetary policy interest (1.25%).   The report also mentions the fact that in the past month, state bonds in lei grew significantly on the secondary market, a consequence of growing inflation and the political crisis in the ruling coalition. This acceleration of an upward movement is added to a more general growth tendency throughout the year, as a result of the pressure exerted in the primary market, where investors' demand was not in step with the powerful increase of budget deficit financing needs. The curve leveled, buying interest, when it existed, concentrated on the long segment of the curve, a sign that investors consider that the central bank will be successful in reducing inflation.   Money turnover was very low because of the absence of investors during summer, then because of political uncertainty. Reactions of rating agencies towards the political crisis were mixed, Fitch considering a risk at fiscal level, while S&P considered the government would succeed in reaching fiscal targets established with EU.   The calendar of state binds amounted to 4.1 billion lei kin August, according to the report, the Finance Ministry issuing only 3.8 billion lei and 73 million euros. In September, 1.8 billion lei of 2.8 billion scheduled, have been issued so far, because of: worried about inflation, low cash flow because of the holiday period, the political situation.   “In August, the national currency appreciated against the euro, mostly due to flows concerning the export of farm produce, reaching a maximum level of 4.91. When those flows were consumed, as a result of the government crisis, the leu was transactioned at a historic low of 4.9488. Although the past month was more volatile than usual, we anticipate a stabilization in the context in which inflation is at a high level and the exchange rate over it is significant,”the report shows.   “A.C.I Romania – Financial Market Association”, is a non- lucrative professional organization based on friendly relations among dealers, for the promotion of that profession, without discrimination at a competent professional level and ethical standards of loyalty considered indispensable in developing relations among members.