Romania’s RON to set new lows vs. hard currencies as investors begin to be skeptical about the local outlook

Sorin Melenciuc 25/01/2019 | 10:45

The Romanian currency falls deeper on the forex markets on Friday as investors begin to be more skeptical about the local outlook and due to the fast deterioration of the trade and current account balance.

On Friday morning, the RON was trading at 4.7680/EUR but in the previous day, when the Romanian market was closed due to a local holiday, the RON fell to 4.78/EUR.

Analysts say RON’s depreciation is based on weaker outlook regarding Romania.

“Given the relative lack of depth of the forex market, such movements can appear from few large international players’ trading activities. While it’s apparent also from other local assets’ underperformance that investors are beginning to be more skeptical about the local outlook, there is a also some fundamental rationale why RON should be weaker if we consider the fast deterioration of the trade and current account balance,” BCR chief-economist Horia Braun-Erdei said.

“In that context, even for the NBR a depreciation of 2 -3 percent is not something that should be considered as contrary to its policy stance, however the central bank may indeed want to avoid getting into a spiral of depreciation-inflation-loss of confidence in Romania, so if this trend worsens they can get in the way,” he added.

Analysts point out that RON’s depreciation is far more important than in the case of other regional currencies.

The RON is also losing value against other major global currencies. US dollar is now traded at close to 4.2080/RON, while CHF – at 4.2250/RON.

On Wednesday, Romania’s currency has suffered one of the biggest corrections in recent years against the European single currency. RON has reached a fresh all-time low for the seventh day in a row, the exchange rate rising by 0.9 percent to 4.7569/EUR.

Analysts suspect speculative bets against the Romanian currency as the central bank has lower marge of maneuver due to a recent government decision to impose a money market rate-based tax on banks assets.

But National Bank of Romania (BNR) representatives claim that the depreciation of the Romanian leu cannot be linked to a speculative attack but is related to a lack of credibility for investors holding the RON currency.

“I wouldn’t call it a speculative attack. There are many elements here – we have a background situation, one of conjuncture and a momentary one. All three contributed to the result, namely: a lack of credibility for investors holding RON and who are starting to let go of their holdings. (…) The lack of credibility is really what worries us more than anything else,” BNR spokesman Dan Suciu said.

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