Political instability pushes the euro exchange rate to over 5 lei

The National Bank of Romania announced yesterday a rate of almost 5.04 lei, above the psychological threshold of 5 lei defended in recent years by the country's monetary institution, in a tense domestic economic and political context, marked by the resignation of Prime Minister Marcel Ciolacu and the interim of the current executive.

According to analysts, political instability causes capital outflows from the country, and the depreciation of the national currency leads to a decrease in purchasing power. The National Bank has the capacity to intervene, and in the short term, a stabilization or even a return below the threshold of 5 lei for one euro is possible.

• Adrian Codrilaşu: "If the depreciation increases, the effects will be felt through the loss of purchasing power"

Adrian Codirlaşu, president of CFA Romania, says that the depreciation of the leu occurs against the background of increasing risk aversion of investors towards our country. "The evolution of the financial markets, as a whole, shows that capital outflows from Romania have taken place. Yesterday (ed. the day before yesterday), the stock market recorded a significant decrease, government securities depreciated, yields increased and implicitly lei were exchanged for euros so that some investors could withdraw their money, in the context of an increased aversion to the risk associated with Romania. The aversion to risk comes, on the one hand, from the precarious economic situation and, on the other hand, from the political instability," Adrian Codirlasu told us.

Acting President Ilie Bolojan appointed the Minister of Internal Affairs, Cătălin Predoiu, as interim prime minister yesterday. The appointment comes after Marcel Ciolacu announced his resignation from the position of prime minister and the breakup of the PSD-PNL-UDMR coalition, given that Crin Antonescu missed entering the second round of the presidential elections. George Simion, the candidate of the far-right party, won the first round of the elections by a wide margin, with 41% of the votes cast, almost double that of the independent Nicuşor Dan, who obtained 21%.

In this context, yesterday the BNR posted a rate of 5.0378 lei for one euro, 1.21% above Monday's rate of 4.9775 lei. Meanwhile, in the market, the euro was quoted yesterday, around 6:00 p.m., at 5.09 lei, 2.24% more than the previous day's rate, according to data posted by Investing.com.

The President of CFA Romania stressed that the depreciation of about 2% is not significant, but if it increases, the effects will be felt in the loss of purchasing power "We will buy fewer goods with the money and savings we have". The analyst emphasized that our country has a large trade deficit, which means that imports are higher than exports. "Automatically, goods that come to Romania are converted into lei. They will cost more and inflation will be generated," Codirlasu told us.

• Valentin Tataru: ING maintains its year-end forecast of 5.05 lei per euro

Valentin Tataru, chief economist at ING Bank Romania, says that transactions in the interbank market have signaled that the leu has been under strong pressure in recent days. "We believe that the central bank is able and willing to draw a new line, in tandem, but it will take some time for the market to settle down, given the electoral environment and the general political uncertainty," Tataru said, quoted by Bloomberg, writes News.ro. According to the aforementioned source, ING maintains its year-end forecast of 5.05 lei per euro, although some exceedances closer to 5.10 are possible in the short term, Tataru also said.

• Dragoş Cabat: In all electoral cycles, the National Bank was careful not to cause further turmoil; there was a lot of pressure on the exchange rate

CFA analyst Dragoş Cabat believes that the exchange rate will probably return below the threshold of 5 lei for one euro in the coming days, according to Agerpres.

"For me it is a bit unexpected. I have already talked about the main effects of volatility in Romanian political life and among the things that I said would remain unchanged was the exchange rate. My feeling was that the National Bank, on the one hand, has sufficient reserves (ed. for stabilization) and on the other hand, as it has always behaved, in all electoral cycles, the National Bank was careful not to cause even more trouble when political volatility appeared. It means that there was a very high pressure on the exchange rate and it will probably go back below 5 lei/euro in the coming days", said Dragoş Cabat, quoted by the press agency.

In his opinion, otherwise, it means that the moment has come that the monetary institution in our country has been waiting for to move to a depreciation of the currency. "The leu, however, appreciated relatively against the euro and the dollar, against all other currencies in real terms, due to the fact that inflation in our country has always been higher than that in developed countries and, despite this, the exchange rate has remained constant for five to six years," said Dragoş Cabat.

• Dan Suciu: It is not the first time that the exchange rate has exceeded the 5 lei threshold in the interbank market

The spokesperson for the National Bank of Romania, Dan Suciu, stated, regarding the exceeding of the 5 lei threshold for one euro, that the figure has more of a psychological impact than an economic one, according to News.ro "The figure of 5 has a greater psychological impact, but it does not have a high economic impact, because, for example, from 4.97, as it is now, to 5, the difference is minor and the economic impact is reduced," explained Suciu, adding that it is not the first time that the exchange rate has exceeded the 5 lei threshold in the interbank market.

According to G4Media, the BNR spent two billion euros in a single day to maintain the leu's exchange rate stable after George Simion's victory in the first round of the presidential elections. The pressure on the national currency began on Monday morning and intensified in the afternoon, as investors tried to get rid of lei and buy euros to protect their deposits, according to G4Media sources. Dan Suciu confirmed to G4Media the pressure on the leu's exchange rate.

"Recently, an important change has occurred on the foreign exchange market. Capital inflows have decreased, and outflows have increased significantly. Consequently, in order to temper these movements, liquidity must be attracted from the market and interest rates must increase. The BNR will seek an optimum for this situation," said Dan Suciu, quoted by the aforementioned publication.