Sliding demand for state securities. Info-Prim Neo interview with Mihai Bologan, expert of Alternative Economic Ideas Club

{The significant reduction in liquidity in the banking system affected the state securities market. The transactions to sell and purchase state securities on the secondary market in March totaled 3.4 million lei, as against 30.3 million lei in February. The nominal average weighted interest rate rose to 17.47 %.} [ - How can you explain such a sharp decline in the volume of transactions with state securities?] - The changes on the secondary state securities market are determined by the developments on the primary state securities market. March was a special month as the demand for state securities decreased about twofold, the average weighted interest rate increased by 3.64% over a single month, as the volume of state securities traded on the primary market fell insignificantly. I consider that the first two factors were determining in this case. The decline in demand for state securities could be explained by: 1.The lack of money available in banks to purchase state securities; 2.The possibility of depositing money at a higher rate than the one provided by the state, which makes the offer of the Ministry of Finance less attractive. The second factor has led to a rise in interest rates. The volume of transactions on the secondary market decreased suddenly because the owners of state securities are not willing to sell them as their interest rate is higher. Also, the number of potential buyers on the secondary securities market will decrease with the rise in rates. [ - What risks can appear in such a situation?] - The situation on the secondary market is not so important in the placement of state securities by the Ministry of Finance. The lower volume of transactions can mean a lower demand for state securities or owners’ unwillingness to sell them. [ - What will happen to the state securities market in the near future?] - The situation on the primary market shows that the banks’ demand for state securities follows a cyclical pattern so that it decreases significantly once in three or four months. We must follow the developments on the primary market the next month to see if the March decline is part of the ordinary trend or an extraordinary occurrence.