U-turn: the euro now forecast to go even below 4 RON

The euro will continue to become cheaper on the Bucharest market, with the exchange rate possibly going below the 4 RON/EUR mark, according to the latest estimates of banks. The reason for this reversal in forecasts is not very strong, though: the change in the investor sentiment towards emerging markets, Romania included.

Deutsche Bank, the biggest German bank, sees the euro down to 4 RON, given that international players have cheap money available for which they are looking for profitable investments, and recommends investors to borrow in euros and buy RON, without indicating a specific timeframe for the strengthening of the RON.

Although interests have gone down from 10% to 7% in a matter of days on the Bucharest interbank market, after the NBR cut the key rate from 8% to 7.5%, the RON gained ground and the strengthening trend continues.

NBR calculated a 4.1679 RON/EUR exchange rate on Friday, 0.42 bani below the previous day’s level. Compared with the level at the end of last year, the RON gained more than 1.5% against the euro.

“The year 2010 started well for the currencies in Europe, Middle East and Asia. At a first glance, the factors seem to be the same that started the rebound of these currencies after the first quarter of 2009: new capital inflows for investments in bonds and stocks, an improvement in the risk appetite and a slight weakening of the dollar,” says Arend Kapteyn, chief economist of Deutsche Bank’s Global Markets research team.

The decline of the exchange rate would be good news for all those who have loans in foreign currency to repay, particularly because more and more employees are faced with a decline in incomes or even with the prospect of losing their jobs. Importers, too, would stand to gain, because they could this way cut their prices at a time of slow demand. It would also help the NBR in its battle with inflation, leaving room for new key rate cuts, which would in turn lead to cheaper RON loans.

Erste Group, BCR’s indirect majority shareholder, also sees the exchange rate at 4 RON/EUR in June, a forecast improved by 20 bani. It also anticipates a 4.10 RON/EUR exchange rate for the end of the year, compared with the previous 4.20.

Another major bank even anticipates the euro might go down to less than 4 RON over the coming months.