Some of the speculative capital that entered Romania last year is now exiting the market amid big drops in interest rates for local currency, coupled with some moments of unforeseeable volatility of the exchange rate.
Since the beginning of the year interest rates on the monetary market have fallen by 10%, while the exchange rate has fluctuated by more than 10%.
Foreign currency withdrawals have been in evidence recently, though only in relatively small amounts - in the range of 10-50 million euros - which showed on the market in the form of an exchange rate that got stuck at certain levels over several days, such as the recent 36,500 ROL "threshold." Some players believed this resistance of the exchange rate to be the effect of interventions by the National Bank of Romania (NBR) through intermediaries, only for the NBR to later confirm that there had indeed been withdrawals of capital from the market.
"We picked up signs that some speculative capital has decided to pull out of Romania due to the heavy fluctuation of the exchange rate," said Cristian Popa, vice-governor of the central bank, as quoted by the Dow Jones.
The NBR estimates the volume of the inflows in question at 1.5-2bn euros over 12 to 14 months. In these circumstances, the bank tested the market's capacity to withstand sudden outflows of capital in mid February this year when it bought 600 million euros in two days. Popa says the central bank has no intention of prohibiting foreign investors from accessing Romanian financial markets as long as they do not break the law. "It is not about denying access but about applying a set of policies, including the gradual reduction of interest rates and a fluctuating exchange rate, which will make the Romanian market less attractive for foreign capital," the vice-governor said.
The central bank is preparing to take a step towards deregulation of the forex market to prove it is not afraid of foreign players.
A circular amending foreign currency regulations that is to be published in the Official Gazette says that buy and sell orders will be allowed on the forex market for both residents and non-residents alike "for all operations that can be conducted pursuant to the provisions of this regulation".
This means that besides Romanian companies that have been waiting for open access in buying foreign currency, foreign banks with no subsidiary or branch in Romania will also be allowed to participate on this market.
At the same time, intermediaries will be able to establish internal procedures whereby they can convey orders from clients, with electronic means also permitted.
With this step towards the deregulation of the forex market the central bank is in effect officially looking the other way with respect to the loopholes already identified by foreign investors that allow for placements in ROL, which are highly profitable due to persistently high interest rates and the ROL appreciation trend. These so-called "special purpose vehicles" are already well known: they are simply limited liability companies set up by foreign banks to gain access to various domestic currency placements. razvan.voican@zf.ro
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