Nicolae Vacaroiu, interim President of Romania and former Prime Minister from 1992 through 1996, has commented, shortly after taking over his new position, that the RON risks a correction due to fast-paced current account deficit growth. He said he would invite NBR Governor Mugur Isarescu to the Cotroceni Palace (presidential HQ), to discuss taking steps to contain the macroeconomic parameters and also expressed concern over the deterioration of the balance of foreign payments.
Foreign investors were quick to react to the statements made by the interim president who is still a PSD (Social Democrat Party) member, regarding the dangers of a depreciation of the RON under pressure from the foreign deficit. On Friday evening non-resident players bought euros at rates of more than 3.34 from offshore markets. Before the statements in question, the local market had closed at rates of 3.355/3.3385 RON/EUR, 30 bani (100 bani equal 1 RON) over the level of the first hours of trading. The euro had increased to more than 3.34 RON in Bucharest during the trading session on Thursday, after the announcement by Parliament of the suspension of President Traian Basescu.
"This is not a normal statement from a president," says Ionut Dumitru, head of Raiffeisen Bank's research department. Comments on the trend of the exchange rate usually come from the monetary authority, but positions are expressed with more discretion. It remains to be seen whether the move to close the RON positions that begin on Friday night would continue through this week.
Dumitru believes the risk of adjustments of ratings assigned to Romania still persists, particularly if we see the political conflict taking to the streets.
Analysts believe that the RON can only experience corrections in the short-term, while its appreciation outlook will be maintained in the long term, given the convergence to the EU and the euro, which entails continuing efforts to attract foreign investment. Varujan Vosganian, Minister of Economy and Finance believes that with the current free fluctuation regime of the domestic currency in place, the RON could continue appreciating against the euro until 2009-2010, with a similar trend being witnessed by the currencies of other states after their respective EU accessions. The Finance Ministry is meant to support the RON's appreciation, with Vosganian considering borrowing around 200 million euros from foreign markets, displeased with the RON rates charged by domestic banks.
At the same time, Vosganian is more ambitious than the NBR regarding the date of joining the European Exchange Rate Mechanism, ERM-2, which will happen before adopting the euro. "Romania could join the ERM-2 in 2009, three years before the Government's target, which was sent to the European Commission this year," Vosganian stated. He ignores the fact that the NBR sees joining the ERM-2 being possible in 2012 and that the usual period of time for testing the stability of the domestic currency is two years. Any longer period would raise questions and expose the currency to speculating pressure, without the central bank being able react.
"We hope to join the ERM in 2009, which will be a preparatory step for adoption of the single currency, so that we could be accepted into the eurozone by 2013 or 2014," Vosganian said in an interview in Berlin during a meeting of European finance ministers.
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