BNR Bought Foreign Debt Of EUR28B In January-August

10.14.2011 By Claudia Medrega

Romanian central bank bought foreign treasuries worth 117.8 billion lei (EUR27.9 billion) in the first eight months, equal to roughly 76% of the overall international reserves.

The bank's holdings in foreign paper increased by RON24.3 billion (EUR5.7 billion) in January through August from the year-earlier period, according to central bank data.

At the same time, total deposits in international banks declined by RON20.2 billion (EUR5 billion) to RON16.4 billion (around EUR4 billion) at the end of August.

The central bank's investments in foreign treasuries have outgrown the deposits throughout the analyzed interval, and it looks that the bank was trying to adjust to market conditions and obtain higher yields from its foreign currency reserves, which reached EUR33.6 billion at the end of September.

The forex reserves are managed by a special committee of the central bank. According to its bylaws, the central bank can purchase state treasuries issued by the United States and government agencies sponsored by the authorities in Washington, as well as government paper from the European Union and other countries ranked 'AAA.'

Additionally, the central bank can buy asset guaranteed treasuries issued by multinational institutions or even private institutions.

However, prudential measures dictate the central bank cannot directly purchase bonds issued by the Finance Ministry.

Although central banks do not usually finance the budget deficits of their own countries, the US Federal Reserve, the Bank of England and the European Central Bank have all eliminated these restrictions because of the global financial crisis and they bought local bonds to stabilize the markets.

(English version by Florentina Dragu)