The exchange rate announced by the Central Bank (BNR) increased to 4.4462 RON/EUR during the day following prime minister Ponta’s resignation. On Tuesday the exchange rate stood at 4.4318 RON/EUR.
The interbank market reacted to political uncertainties determined by Ponta’s mandate end, which encloses the dissolution of the government. Local scenery is currently in murky waters, with talks of early elections and even more protests being expected.
“The news of the prime minister’s resignation bring uncertainty in the short term. We’ll see how long it lasts. Any uncertainty regarding government is seen negatively, including for government bonds. If a new government is formed soon, loses will be reversed. If the uncertainty persists, the depreciation will lasts longer,” said chief economist of ING Bank Romania, Ciprian Dascalu, quoted by Mediafax.
Nomura, a market research company, however, expects the “EURRON reaction will be muted and upside should be faded”. Though with the shifting rate the country’s external debt is expected to underperform, the drop should be minor and “local investors should still be happy to buy on dips”.
“This is especially so given that Romania was a ‘go to’ for foreign investors trading ECB QE into the start of this year. We can also see the lack of market reaction since the IMF P-SBA has ended, with no prospect of renewal,” representatives say.
However, they warn that things could worsen if the political crisis is not resolved in a way that will put an end to public dissatisfaction, which could lead to extended instability. Topping this with the fiscal loosening brought by the new Fiscal Code, the market might start to feel the impact on the deficit.
Victor Ponta resigned following massive protests the previous night, attended by 25,000 people who asked for Ponta, internal affairs minister Oprea and Sector 4 mayor Piedone to step down, taking accountability for the Colectiv fire.