Analysts say Bulgaria’s first repo auction was ‘too late, too small’
SOFIA (Reuters) – Bulgaria’s debut repo auction failed to affect the domestic money market, which managed to overcome a short-term liquidity crisis mainly due to sales of euros to the central bank, dealers said yesterday. The debut auction, carried out by the Finance Ministry on Wednesday, was followed by a second one yesterday and aimed to inject liquidity into the market after tax payments boosted interbank deposit rates to record high levels earlier this week. «The (debut) auction came too late and was too small in amount to have some impact on the market,» one bank dealer said. Another trader said, «Banks have been selling hefty amounts of euros for levs to the central bank since Tuesday, which is the only reason that helped to calm down the market.» On Wednesday, the ministry bought back government paper worth 25 million levs ($14 million) owned by local banks, licensed to be primary T-paper dealers, at an average annual interest rate of 11.6 percent. The transaction, known as repurchase agreement or repo, is the first of this type carried out in the post-communist Balkan state that has been struggling over the past 13 years to install a market economy, officials and dealers have said. Yesterday the ministry held a second repo auction and bought back 18.65 million levs’ worth of paper at an average rate of 2.63 percent, ministry data showed. «We plan similar operations in the future when necessary,» a ministry official told Reuters, but declined further comment. Overnight, depo rates fell to an annual 2.5-3.0 percent yesterday, from 10-40 percent on Wednesday and up to 90 percent on Tuesday, dealers said. «The market is almost dead at the moment. But volatility is possible again, so it’s good to see that the government is ready to regulate liquidity,» said a dealer at a big local bank. Increased demand from banks on Tuesday to cover some 200 million levs’ worth of clients’ tax payments lifted overnight rates to up to 90 percent, the highest level since a financial crisis in 1997, and compared to 3.3-3.4 percent on Monday. Unlike more advanced European Union candidates, Bulgaria’s money and fixed-income markets are still unattractive for foreign players because of a fixed currency rate and a lack of investment opportunities.
