Euro up to new all time highs, NBR won’t intervene

The euro went up to a new all time high yesterday, reaching a rate calculated by the NBR at 4.3257 RON, thus continuing the rise started at the end of last week, when the decision of the Constitutional Court disallowing the 15% pension cut upset Government's plans to adjust public spending.

In only two days, the RON lost over 2% against the euro, but the exchange rate increased amid "insignificant" traded volumes. The euro rose to almost 4.34 RON on the interbank market.

This time, the exchange rate increase did not make the National Bank intervene as it did last year, when the market's attempts to take the euro to over 4.3 RON were swiftly offset by sales of foreign currency through local banks.

Thus the question of the day is whether this is a brief 'foray' of the euro into the above 4.3 RON territory or the NBR is allowing the exchange rate to resettle on a higher position.

"I see it as a temporary move of the market, a response to the domestic factors and the foreign climate. The significant impact came from the delay of the IMF loan tranche (which should have come on July 1 i.e.)," says Georgiana Constantinescu, Credit Europe Bank analyst.

A weaker RON would be a breath of fresh air to exporters, hit by the increase in manufacturing costs as a result of the VAT hike, but would make life harder for those who borrowed in foreign currency.

At any rate, dealers and analysts see only a limited depreciation of the RON possible, with a new balance level at 4.4 RON and will not consider spikes of 5 or 6 RON as mentioned in public discussions.