Romania’s RON falls deeper to a new historic low vs. EUR. BCR’s chief economist: “Some international investors are turning their backs on Romanian assets”

Romania’s currency, RON, has reached on Monday a fresh all-time low against the European single currency for the fifth day in a row, the exchange rate rising to 4.7081/EUR, National Bank of Romania (BNR) data show.

On Friday, the reference exchange rate was RON 4.6975/EUR, also an all-time low.

BCR’s chief economist, Horia Braun, told BR that this underperformance of the Romanian currency could be due to some international investors turning their back on Romanian assets.

“EUR/RON today exceeded the psychological threshold of 4.70 at the NBR’s fixing. Since December 18^th when the government first announced its intentions to tax banks, energy and telecom companies and to overhaul the mandatory private pensions scheme, RON lost around 1.3% in value versus EUR, while other regional currencies were either steady (EUR/PLN) or even appreciated (EUR/HUF by 1.3% and EUR/CZK by 0.6%). So the current trend seems to be one of underperformance of the Romanian currency, which could be due to some international investors turning their back on Romanian assets, especially that similar underperformance could be witnessed in the bond market (Romanian index calculated by Bloomberg lost 1% since December 18^th, while Emerging Markets benchmark was up by almost 3%) and in the equity market (with the local index losing almost 12% over the period, compared to the MSCI Emerging Markets index which increased by almost 6%)”, Horia Braun told Business Review.

Adrian Vasilescu, the counsler of The National Bank’ Governor told BR that the underperformance of the Romanian currency is due to the high level of imports sold in December 2018. “The depreciation of the RON in January 2019 is of 0.6 percent. The trade deficit reached EUR 14 billion in December 2018, and importers that brought good in Romania are changing their RON into EURO to pay their foreign suppliers. Another reason for the depreciation comes from the new taxes announced by the Government in December”, Adrian Vasilescu explained.

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Experts warn that RON’s depreciation is normal due to large current account and fiscal deficits but expects the central bank to step in.

“The Romanian leu continues to hit fresh highs as the market tests a new comfort zone. There are no hard ceilings from the National Bank of Romania yet, which seems focused mainly on smoothing the pace of depreciation. As the new reserve period is about to begin, the higher carry will likely help in that respect,” ING Bank analysts said on Monday.

On Monday, the central bank eased the pressure on RON through the second deposit tender in two weeks, of RON 4.3 billion, reducing the excess liquidity in the market.

US dollar gained 0.45 percent to 4.1377 RON.

Romania’s three-month money market rate (ROBOR), the main indicator that sets the interest rates for RON currency borrowers, rose on Monday to 2.97 percent.