The Romanian national currency, RON, is expected to weaken by one percent versus the euro over the next year, according to a Reuters poll of 36 analysts.
Romania’s currency is considered more tightly managed by the central bank than its regional peers, which it has outperformed this year.
Analysts point out that inflation in Romania is the highest in the region and “mounting imbalances” in the budget and external positions could weigh on the RON.
“As the National Bank of Romania mentioned that they will allow greater FX flexibility… (this factor), together with strong USD and further policy tightening in the US, will act unfavorably for the leu,” said Jakub Kratky, analyst of Generali CEE, cited by Reuters.
On Monday, Romania’s currency depreciated by 0.2 percent against the euro to 4.6566/EUR, the highest level since May 4, and the exchange rate remained over 4.65/EUR since then.
A depreciation of one percent would imply a record high exchange rate of close to RON 4.7/EUR.
Experts say the RON’s depreciation is due to higher liquidity in the money market on lower intervention decided by the central bank, but recent political tension and debates about the future of Pillar II pension funds may have played a role.
On May 7, Romania’s central bank raised the monetary interest rate from 2.25 percent to 2.5 percent, the highest level since February 2015, in line with economists’ expectations, who see the decision as a consequence of upward revision of the inflation forecast.
Following the central bank’s move, Romania’s money market rate (ROBOR), the main indicator that sets the interest rates for RON currency borrowers, reached a 3 years and 7 months record of 2.87 percent on Wednesday.