Romania’s currency has been weakening versus the euro in the past week in response to the new taxes enacted by the Government and the concerns generated by the lack of regulatory predictability, which prompted anxiety among risk-averse investors.

The local currency weakened by 0.9% versus the euro on January 23 (January 24 was bank holiday) and the official exchange rate announced by Romania’s National Bank (BNR) reached a new high of RON 4.757 for EUR 1. Since the beginning of this year, the RON lost 2% against the EUR.

Analysts polled by Reuters show an expected yearend exchange rate of RON 4.75 per EUR, according to Profit.ro. However, some analysts see risks for sudden weakening: Capital Economics’ Liam Carson quoted by Profit.ro warned about rates of up to RON 5 per EUR by the end of the year, but such scenarios are rather pessimistic and used in stress tests.

The latest CFA poll conducted in Romania (indicating RON 4.79 versus the euro by the yearend) is rather outdated since they do not price in Government’s latest actions. But currently, the expectations have not yet consolidated as the uncertainty remains high as the Government has not come up with 2019 budget planning.

BCR head analyst Horia Braun quoted by Ziarul Financiar sees foreign investors expecting a wider risk margin, after the Government’s latest actions, as the cause behind the exchange rate correction.

On a more aggressive note, Hotnews.ro quoting an unnamed dealer, speaks of a “speculative attack” that the central bank is not in position to respond. The central bank seems to expect the Government to realise that the new banking tax it enacted as of January 1 works against its interest by rising the financing cost it has to pay on the primary government debt market, the dealer explained. The central bank itself seems, thus, to wait before taking a position in regard to the monetary policy it has to pursue in response to the complex challenges (fiscal policy, widening external deficits).

Meanwhile, the ruling party in Romania, the Social Democratic Party (PSD), said on Thursday that the central bank is the only institution in Romania that can exert control over the exchange rate using the EUR 36.8 billion in foreign exchange reserves, according to Digi24.ro.

Romania’s currency leu reaches new low against euro

editor@romania-insider.com

(photo source: Shutterstock)