(Repeats story published late on Wednesday)
(For other news from the Reuters Central European Investment
Summit, click on
http://www.reuters.com/summit/CentralEuropeanInvestment08?pid=500)
By Jan Lopatka
VIENNA, Oct 22 (Reuters) - Tension on the Czech money market
has eased over the past week and market-making on the bond
market could resume soon, central bank Vice-Governor Miroslav
Singer said on Wednesday.
Singer said there was still nervousness on the market but
that banks had been asking for fewer banknotes, have more liquid
assets than at the beginning of the month and that there had
been no outflow of deposits from the system.
He added the central bank could take over the market-making
role for the government bond market but added he hoped that
would not be necessary.
"The market is calming down," Singer told the Reuters
Central European Investment Summit in Vienna when asked about
the money market. "We had some tension on the market last week;
we also noticed that banks were hoarding cash, plain cash, in
banknotes."
"The tension obviously eased ... deposits are growing again,
at a normal pace, and the banks are asking us for much less cash
than last week."
He said banks were only lending for the short-term, but that
in general the domestic banking system had a systemic surplus of
liquidity and high deposits, which banks use for financing
rather than the money market.
"Banks definitely have on aggregate much more fast (easily)
liquid assets, treasuries and similar instruments, than at the
beginning of October," he said, adding liquid assets had grown
by about 10 percent.
Czech banks have not been exposed to the toxic assets at the
heart of the global credit crunch to any large extent and no
financial institution has been in trouble during the crisis.
But the stock market has been battered, the crown currency
has slipped, while the government has been forced to cancel bond
auctions and market making on the bond market has seized up.
Market-making is when a bank maintains a firm bid and ask
price for bonds by standing ready, willing, and able to buy or
sell at publicly quoted prices.
Singer said he had expected the bank's new repo facility --
which offers to lend to banks against state bonds in order to
restart standard bond market operation -- to attract more
interest.
"I myself expected higher volumes," he said. "It seems that
market making is not being restored. Trading with bonds exists
over the phone."
"Traders are afraid that foreign entities might liquidate,
because of cash needs, big portfolios of Czech bonds."
The bank has lent just 9.8 billion crowns in four repos over
the past week, just a fraction of the roughly 350 billion that
it sterilises in standard repo operations.
Singer said that kick-starting the market by starting market
making itself, possibly through the Prague Stocks Exchange's
SPAD stock trading system.
"We hope we will not have to do this," he said.
He added that it seemed there was some development and the
market may unfreeze the market relatively soon.
(Editing by Patrick Graham)
