Euro continues to fall with yearend exchange rate uncertain

The RON resumed its growth trend against the euro in the first trading session since the NBR intervention on Friday, a signal intended to contain the rapid appreciation of the domestic currency.

Dealers say the RON will keep on rising if the central bank does not buy up excess domestic currency from market, meaning we could soon see a RON/EUR exchange rate of less than 3.4 RON/EUR.

The National Bank yesterday calculated an exchange rate of 3.4306 RON to the euro, 2.02 bani less than the previous rate. This means the RON has gained 2% against the euro over the last week, with growth since the beginning of the year exceeding 13%.

The euro fell as far as 3.4255/3.4295 RON on the forex market, after a session in which foreign currency was sold constantly. Consequently, last Friday”s intervention, when the NBR intervened on the market directly, had no effect, since the amount attracted was insignificant.

Analysts now expect the RON to continue to appreciate until the end of the year, knowing that it is highly unlikely that any significant capital outflows will occur and that and foreign currency inflows will maintain at high levels.

“I expect a 3.35-3.45 RON/EUR exchange rate at the end of the year, maybe even lower than that. The likelihood of significant capital outflows at the end of the year has decreased a great deal based on the latest trends. The exchange rate will play an important part in the inflation targeting process over the near future, given that interest rates cannot be an efficient instrument for the time being. Therefore we can expect to see the NBR intervene far less often and, in case of substantial capital outflows, it will be possible to use the safeguarding measures,” said Florian Libocor, a BRD-SocGen analyst.

“I think we”ll have an exchange rate of 3.25-3.3 RON/EUR by the end of the year if we take into account the appreciation thus far. Most of the inflows are in the form of cash from exchange offices, although there were also inflows of capital from abroad,” said Dorin Badea, Bancpost”s head dealer.

The appreciation of the RON makes it easier to repay loans in foreign currency, reducing the instalments that need to be paid. This, however, contributes significantly to stimulating demand for loans in foreign currency, which is already at a high level.

On the other hand, companies that have revenues in euros have been dealt another blow due to the unexpectedly fast appreciation of the RON.

“I am stunned by what”s happening. This is the exactly the time when we should be setting hotel tariffs for next year and we don”t know what exchange rate to use for the calculations, not to mention VAT” said Radu Enache, chairman of the Continental hotel chain.

Continental Hotels is Romania”s only domestic hotel chain, with 14 hotels and an annual turnover of about 20 million euros.

However, not all companies feel threatened by the fluctuations of the exchange rate. “We have been unaffected, theoretically speaking, because the fluctuations of the exchange rate will either stimulate exports or imports, and we are somewhere in between (…), ” said Bogdan Enache, country manager with TNT Romania. zf@zf.ro