Highly Volatile Exchange Rate

The exchange rate has been fluctuating severely over the past few days, under the influence of recent rating downgrades and the general trend of other currencies in the region. The dollar inched over the 3 RON milestone on Friday, after having gained 9 bani on the leu, while the euro gained 5 bani on the leu to 3.0628 RON shortly before the leu took an upwards turn and gained 1.35 bani on the dollar and 2.4 bani on the euro. Towards the end of the day, the leu stepped back a little to roughly 3.8050 RON/EUR. Yesterday"s low was 3.7870 RON/EUR. Analysts believe that yesterday"s fluctuations are the result numerous buy orders for lei coming from the commercial banks, who find the current exchange rate quite convenient.

Unless some major event takes place until the end of the year, the exchange rate should come to a bit less than 3.8 RON/EUR, according to some of the dealers. Ionut Dumitru, Chief Economist of Raiffeisen Bank, believes that the exchange rate volatility is augmenting expectations of a higher inflation rate, which could even turn out true on long-term. In this scenario, importers will try to cover their exchange rate costs by increasing prices. Although a weaker leu would stimulate exports, it is important that the exchange rate volatility remains contained, Dumitru believes.

While a depreciation of the leu would normally lead to an adjustment of the current account deficit through more substantial exports, the ongoing international crisis has caused a drastic cut in the volume of orders that Romanian exporters usually receive, so exports may not increase after all. Mihai Ionescu, President of the Associated Exporters and Importers in Romania (ANEIR), believes that, although a weaker leu would favour exporters, the foreign demand has decreased severely, so exporters have been producing without selling lately. Unfortunately for them, they are financed by banks, who are reluctant to extend credit lines.

Speaking of measures to solve the situation, Ionescu said that ANEIR would meet Eximbank officials on Monday to discuss the problems facing exporters. He added that, unless immediate measures were taken, exporters would have no choice than to cut jobs or even close their business. Among the possible measures, Ionescu mentioned loan re-scheduling and a transfer of debts from various banks with difficult lending terms to Eximbank, because Eximbank is using State funding and is able to offer loans with zero interest.

As for the measures proposed by the Government to avoid the economic crisis, Ionescu believes that the Prime minister"s speech was inappropriate and punishable by the National Audio-Visual Council because he made all the proposals without knowing whether he would be in office next year, after the elections due this month. Referring to the actual content of the proposals, Ionescu said they were no surprise as ANEIR had been requesting practically the same thing for a long time.