US dollar takes another plunge on Romanian market

How low can the dollar go without impacting on the Romanian economy? Without demand for USD loans soaring again? How high can the euro go without messing the forecasts of the central bank, without jeopardising the inflation target and without ruining the glorious image of the macroeconomic indicators? Moreover, the euro’s climb is making the performance of Romanian companies look bad, as it is expressed in the single European currency.
Although no one saw it coming, the euro has gained more than 35% against the domestic currency since January 2002, while the US dollar has only increased 1.1% against the ROL since last January. Those that have to pay back dollar-denominated credits are rejoicing, but those cashing revenues in the US currency are less than happy.
At first sight, we are very likely to see a new boom of dollar-denominated loans. This is a risky situation, which the National Bank of Romania has been trying to avoid for some time.
We have learnt from experience that nothing is impossible. People prefer to take loans in that currency that posts the most sluggish growth. And if the ROL’s exchange rate against that currency goes down, that’s even better. And this is exactly what is happening with the dollar – it has been on a constant decrease against the Romanian currency for a while.
The American currency went below the 32,000 ROL threshold on Friday, given the euro’s rocketing ascent on the international markets (to an all-time high of 1.1819). Consequently, it hit the lowest level ever recorded by the ROL/USD exchange rate since January 11,2002.
“It is true the dollar’s drop may lead to a shift towards loans in this currency, but one should not overlook the risk of such a decision. No one can possibly know exactly how things will evolve. Those that are winning now, in the short term, may very well lose in the long run,” feels Cristian Ditescu, senior dealer with ABN Amro Bank Romania.
Claudiu Cercel, head of BRD-SocGen’s market operations division, feels the same way and warns “the plunge of the ROL/USD exchange rate may also prompt slightly more people to convert their savings, from dollars to ROL or euros.” “Let us not forget that more than 60% of the savings in the banking system are now dollar-denominated. And this is because people never thought the dollar could go that low,” Cercel states. oana.nuta@zf.ro