NBR spent approximately 1.1 billion euros in September to keepthe RON/EUR exchange rate low for two weeks, yet the politicalcrisis that started a week ago drove the rate back up towards 4.3RON/EUR, from 4.2 RON/EUR.
"According to our estimates, the net inflows as a result ofNBR's interventions on the forex market stood at approximately 1.1billion euros. This is one of the biggest amounts ever spent tohelp the RON and confirms our point of view that the NBR hasstepped up its interventions on the forex market towards the end ofthe month," ING Bank analysts say.
In mid September, the euro reached the last few months' high,4.28 RON. President Traian Basescu yesterday specified that thetarget was to maintain the exchange rate within its set margin,that is over 4 RON/EUR, without getting close to 5 RON/EUR.
If political tensions continue, NBR will find it increasinglyhard to keep protecting the RON. While the NBR intervenes to helpthe domestic currency, there may be abrupt rises in interest on theinterbank market occasionally. Over the last few days, the shortageof cash on the monetary market has become acute, with banksstarting to charge 14% a year when lending RON to each other,higher than NBR's key rate of 8% per annum.
ING anticipates the domestic currency will depreciate to 4.5RON/EUR by yearend, given the increase in budget deficit; there isalso the risk that it will overshoot this mark in the first quarterof next year.
A year ago, the NBR chose to protect the exchange rate at3.6-3.7 RON/EUR, which created tension on the monetary market, withinterests going as far as up as to 50% per annum back then.
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