Drastic changes are expected on the forex market in early November 2004, as the NBR wants to get the market accustomed to the nominal ROL appreciation, after having taught it for years that as far as the exchange rate is concerned the only way is up, controlled through periodical interventions.
"NBR's Board of Governors decided to promote greater flexibility of the ROL exchange rate by limiting the central bank's interventions on the forex market," a NBR release shows that was issued three days after the meeting when the bank's executive management made the decision.
At the same time, the NBR gave up plans to publicly announce a real appreciation margin forecast for the ROL exchange rate. This "invalidates any anticipation of an imminent depreciation of the national currency as a result of the central bank's interventions." NBR in its decision considered the trend of the direct foreign and portfolio investments, of the privatisation-related revenues, of the current transfers and of other capital inflows in the first nine months of this year.
"Although autumn and winter imports used to diminish the foreign currency surplus in the previous years, the buying process continued this October, with NBR acquiring a further 218.1 million euros, which, if correlated with other data, suggests capital inflows in Romania have improved on structural and sustainable bases," NBR's release says.
After two weeks of NBR absence from the market, the euro had slipped to 40,577 ROL yesterday, 1.3% lower than at the beginning of the year. Unless the bank intervenes and starts to buy, the rate could easily fall to 40,000 ROL to the euro by tomorrow.
As for the dollar, its fall continued down to lower than 32,000 ROL, with the exchange rate calculated by the NBR being 31,939 ROL, a situation that also happened in 2002. This is also reason to rejoice for those with USD-denominated loans that are now paying lower and lower repayments.
The NBR release does nothing but confirm this image, "given the capital inflows in this period, the real ROL appreciation may consolidate, which signifies an important strengthening of the monetary policy."
There is another reason for the decision to allow the ROL to appreciate, even in nominal terms - the inflationary pressures caused by the skyrocketing petroleum prices on international markets.
NBR, however, says that the higher appreciation of the ROL exchange rate is based on the increase in labour productivity across the industry and the positive trends in terms of export structure improvements.
The central bank wants to support the continuation of the disinflation process by consolidating the appreciation of ROL in real terms.
"Despite price increases in the last few months that were higher than expected for the period, the consumer price index in the last 12 months dropped from 14.1% in December 2003 to 11.1% in September 2004. To validate this disinflation process, NBR's Board decided to cut the intervention rate by 0.50% to 18.25%," the NBR release shows.
This is the first time the NBR Board has issued a more detailed release explaining the decision for a rate cut from several points of view.
razvan.voican@zf.ro
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