Another warning from central bank: ROL/USD exchange rate is not nailed down

The nominal depreciation of the ROL against the US dollar has resumed, after a long interval of stability. In ten days, the dollar has gained more than 200 ROL, which brought it close to this year’s record-high values posted in May. The exchange rate increase is set to continue, as requested by the International Monetary Fund. However, the growth pace will not be spectacular and there will be no huge leaps, as the National Bank of Romania does not want to startle the market, which is extremely sensitive to these changes of direction.
“The ROL/USD exchange rate is not nailed down” – this is the clear message conveyed by the central bank. But the NBR is also up against a big problem – the excessively high currency exposure of banks and companies, due to the granted/requested credits.
As the dollar did not budge for seven months, currency credits became much cheaper than ROL lending, as the banks were slow in cutting rates for domestic currency credits.
The rates for dollars range between 6 and 12 %. If the ROL/USD rate is stable, the cost of a dollar-denominated credit is much smaller than ROL credits, which go over 30%.
In the first eight months of the year, the foreign currency credits increased by 33%, while ROL loans only grew 12.5%. A mere quarter of credits are ROL-denominated, while the rest are granted in foreign currency or the payment is related to the exchange rate of some foreign currency (euro/dollar). The equivalent of almost three billion dollars in currency credits is at stake. All in all, any increase in the ROL/USD exchange rate translates into additional expenses worth tens of millions of dollars for the companies that contracted foreign currency credits and are now paying the interest rates.
“This could spell disaster for those that took big credits in dollars,” says Lucian Croitoru, advisor to the NBR governor. “The apparent stability posted by the exchange rate in the past few months (i.e. the fluctuations around the 33,000 ROL level) has obviously induced a ‘soothing effect’ on the banks and those contracting credits and they are no longer perceiving the currency risk. The National Bank will take measures so as to change this perception. We must send very clear signals. The exchange rate is not nailed down, it will post changes and those who take currency credits must also take that risk,” Valentin Lazea, NBR chief-economist, told the “Finance & Investment for SouthEast Europe” conference, organised in Dubrovnik by Euromoney magazine.