The euro took a fresh leap on the Bucharest market and climbed 1.3% during yesterday's session to a fourteen-month high of 3.54 RON. Although the RON/EUR rate has now increased 14% since the low registered at the beginning of July, NBR and the Government remain fairly relaxed about the situation, as the level registered in summer was unsustainable. In addition, the current exchange rate level better reflects the economic foundations and provides more support to the competitiveness of Romanian exports.
"(The depreciation of the RON) is normal, because the domestic currency rebounds from an unsustainable level reached in July. What is happening now is part of the normal correction process towards a level more compatible with the fundamental indicators of Romania's economy," said Lucian Croitoru, NBR Governor adviser, as quoted by Reuters.
The fast depreciation of the RON has taken the market by surprise, as analysts anticipated a slower correction rate at the beginning of November and thought it was highly unlikely that the euro would reach the psychological threshold of 3.5 RON/EUR.
Yesterday, the euro sped past this threshold, with rates going up to 3,5450 RON/EUR, after the market consolidated at 3.49 RON/EUR at the end of last week.
Premier Calin Popescu Tariceanu in turn explained, yesterday, that the appreciation of the euro to 3.5 RON was "not a bad thing" because it will help exporters and "hinder certain imports".
The RON was hit by a new and more intense aversion to risk in the region, with foreign financial investors closing their positions on the neighbouring markets, as well.
Analysts had warned in the past months that with the worsening economic foundations (slowdown of GDP growth, inflation resuming an upward trend, the skyrocketing current account deficit and the poorer and poorer coverage of this deficit by foreign direct investments) the RON could be more seriously affected by the regional corrections.
However, NBR is not showing any signs of concern over the speed at which the exchange rate correction continues to progress, considering the RON lost 6.7% against the euro since the beginning of this month alone. In the first three weeks of November, the exchange rate rose from 3.31 to 3.54 RON.
"In our monetary policy decision in January we will continue to target the strengthening of the policy mix, and will see what happens with the planned budget and exchange rate until then," Florin Georgescu, first vice-governor of NBR stated yesterday. He added he expected inflation to go down in December and said a higher rate increase in October could have fuelled speculations about NBR being overly concerned. NBR raised the key interest rate by half a percentage point to 7.5% a year during its monetary policy meeting in October.
"The real positive interest has to be around two percent and we believe we will reach this level soon," Georgescu added.
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