Although the international market considers that nobody would wish to purchase Romanian bonds, and that the leu loses ground against the dollar by the day, investments in the domestic currency – in deposits or state bills – will bring higher revenues than the placements in dollars. Foreign analysts consider Romania is in the same situation as Turkey and Poland, the three states being deemed as the best emerging economies as far as revenues on domestic currency are concerned.
“Although the leu will continue to depreciate, this evolution will be compensated by a high level of interest rates,” Sarah Hewin, senior economist of American Express Bank London, that drafted a report on the situation of several domestic currencies of emerging countries, told Ziarul Financiar.
Sarah Hewin says that her statements were based on a foreign exchange rate forecast at 21,500 lei/dollar, for the next six months and an interest rate of 35 – 40 percent per year. Moreover, she pointed out that the yield of lei converted into dollars might amount to 10-20 percent as opposed to 4-6 percent – the interest rate of dollar-denominated deposits. Although foreign markets avoid Romania and the purchase of its bonds, which are said to bear a high degree of risk, the analysts of foreign banks state that significant revenues might be earned if investing in Romania.
While for investors the way in which incomes are earned matters the least, for the Romanian economy, the high interest rates do not mean anything else than paying a high price for keeping the balance.
“As long as the main objective is to curb inflation and as long as interest rates stay at around 40 percent, it is much more profitable to buy lei in the future,” said atefan Corut, a dealer of Pater Credit Bank.
Authorities have prioritised on reducing inflation and the first instrument for attaining this objective is a restrictive monetary policy which involves a high level of interest rates. At the same time, a controlled depreciation of the domestic currency is an instrument of the central bank, which is trying to use the exchange rate to put on pressures for a cut down in inflation.
Since the beginning of the year, the domestic currency lost 9.83%, while interests brought 15-20% in gains. Although interests will keep falling, the domestic currency devaluation is expected to slow down as well. Analysts estimate that the exchange rate will come to 23,000-24,000 lei/dollar at the end of the year, according to a pessimistic forecast. Although she basically thinks that interests will cover currency devaluation, the American Express Bank economist also considers the opposite situation, but with only 15% chances to occur, at the same time warning investors on the risks present in Romania. Gains in Romania may be melt down by a significant domestic currency devaluation, which may occur against a growing inflation, a budget financing crisis or a lack of foreign financing. “Things will precipitate in autumn, when the authorities will need lei to meet various pledges, triggering thus an interest increase, which, connected to a relatively low currency devaluation, would immediately raise the profitability for investments in the domestic currency,” explained Daniel Marinescu, executive manager of financial investment company Vanguard Asset Management.