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Ctrl Bker: Money Mkt Malfunctions Are Temporary

Romania’s central bank governor Mugur Isarescu said Monday the recent malfunctions on the monetary market are only temporary and the market will solve them in time.
Ctrl Bker: Money Mkt Malfunctions Are Temporary
20 oct. 2008, 16:08, English

Isarescu said that, when the interest rates grow much higher than the Lombard rate, the monetary market is malfunctioning.
 
Early Friday, overnight rates on the money market were at 19.00%-46.13%, while monthly rates stood at 14.53%-43.69%.
 
The Lombard rate stands at 14.25% a year. Lombard is a short term credit facility granted by the central bank to lenders.
 
“The local currency was looked after, but not found on the market (…) The rate will not go below the Lombard rate immediately, as the banks that were cautious and did not look for market share do not want this advantage. However, these interest rates are temporary,” Isarescu said in a press conference.
 
Regarding Friday’s situation, when the money market faced an acute lack of liquidity and interest rates for swap contracts reached 100%, Isarescu said that it was a technical situation and the speculators who anticipated wrong had to suffer.
 
“Those who anticipated wrong suffered. Technically, it is extremely clear what happened. All those swap contracts could no longer be financed, because there was no Romanian currency on the market,” Isarescu added.
 
A swap contract is an arrangement in which two parties exchange specific amounts of different currencies initially, to be returned afterwards, and a series of interest payments on the initial cash flows are exchanged.
 
The National Bank of Romania, or BNR, governor said that it "would be incomprehensible" for banks to pass these high interests to clients.
"We, as a central bank, may not involve in competition issues, it would be unwise", Isarescu said.
 
On the Romanian monetary market, interest rates soared once again on Monday, on an acute liquidity shortage, which led to the appreciation of the local currency against the euro.
 
Early Monday, overnight rates were at 15.99-56.05% on the year, higher compared with Friday’s level of 19.00%- 46.13%, after starting to grow on Thursday to 16.53%-28.31% on high foreign demand.
 
The Romanian leu opened higher against the euro Monday, on high interest rates, and trading around GMT0720 at RON3.6750/RON3.6850 to the euro, amid average traded volumes.
 
BNR computed Monday an indicative average of leu at RON3.6691 against the euro, around 2% stronger than Friday’s indicative.