Forecasts on the exchange rate

The evolution of the domestic currency exchange rate against the dollar, which broke the “pattern” this summer, seems to have taken everybody by surprise and triggered rather pessimistic forecasts concerning the year-end ROL/USD official quotation.

According to a poll conducted by Ziarul Financiar, it seems that the exchange rate may settle around 26,000-27,000 ROL/USD at the end of the year, mainly due to inflation, to the relatively low interest rates and the amount of foreign currency needed for the central bank’s reserves.

“I personally do not think that the threshold of 26,000 ROL/USD will be exceeded by the end of the year, perhaps it will settle around 25,500 ROL/USD.

This evolution will be triggered by several factors. First, the failure to achieve the inflation target announced at the beginning of the year, as well as the approaching maturity dates for certain bills, will generate a negative impact on the ROL/USD exchange rate.

Moreover, in addition to the classical imports of black oil and natural gas, wheat and sunflower imports will grow as well, following this year’s drought, and it is generally admitted that there is a direct connection between their evolution and the devaluation of the domestic currency against the dollar.” (Adrian Batagui, chief of treasury department, Piraeus Bank Romania)

“ROL/USD exchange rate will fluctuate between 25,000-25,500 ROL/USD in the last part of this year. I do not think that it will exceed this level, especially as the central bank is sound enough to control the devaluation. However, it is certain that inflation and the exchange rate devaluation will go hand in hand, as it has happened so far.” (Marius Stoica, chief treasurer, BRD – Societe Generale)

“For the end of the year, I estimate that the exchange rate will reach 26,500 lei per dollar. My statement is grounded on the fact that the inflation target announced for this year has already been exceeded, and the direct connection between the two indicators is generally admitted.

Moreover, the trade deficit “deepens” every day and, doubled by the foreign debt that is soon to reach maturity, it will push up demand for foreign currency and subsequently the pressures on the exchange rate. The “power bill,” that should not be overlooked, is also drawing near.” (Valentin Scarlat, vice-president, Daewoo Romania Bank)

“Stock exchange analysts believe that, at the end of the year, we will have an exchange rate of 26,350 lei per dollar. This figure was not derived from the market evolution, but it was calculated just to be taken into account when settling the initial margins for the USD future contract falling due at the end of the year.” (Liliana Paraipan, marketing and PR manager, BRM)

“The brokers operating in the futures rings from Sibiu estimate an exchange rate of 27,000 ROL/USD for the end of the year.

On Tuesday, there were some buyers in the market for this price, but unfortunately the deals could not be concluded as the sellers of such contracts believe that the price will continue to rise and are not in a hurry to sell. Nobody believes that in the autumn-winter period the devaluation will stay at 40-50 lei per day, as it used to be over this period.

I believe that the domestic currency lost too much ground against the dollar in the summer period, when the opposite situation should have occurred. Speaking from the experience of the previous year, I may say that the interbanking market is rather calm in the summer time.” (Toma Dostetianu, executive manager, BRM Clearing House)

“The lack of a realistic inflation target on one hand will shift focus on the management of the budgetary deficit, which has to be maintained within 3.5% of GDP, and, on the other hand, on the foreign currency reserves, which have to reach USD 2.5bn by the end of the year. Therefore, for the end of the year I see the exchange rate standing at 26,500-27,000 lei per dollar.

There is a financial indicator mirroring Romania’s investment position and rating, according to which the foreign currency reserves of a country should cover three months of imports. If this indicator pointed otherwise, Romania’s image abroad would be spoiled.

Or, there are two ways to reach this target: loans from the foreign markets and purchases from the domestic market. In the first case, the chances are rather poor and we all know why, so that the domestic market is the only chance. This will immediately put more pressure on the exchange rate.

In my opinion, the devaluation will be around 4% per month from now on until December.” (Dragos Iliescu, bank vice-president and chief of treasury department, UGBI Bank Romania)