The collapse of the exchange rate broke the 36,000 ROL/EUR threshold yesterday, on which the market had based hopes of central bank intervention to “defend” the rate.
However, the intervention never came and the central bank calculated a 35,515 ROL/EUR exchange rate, down 508 ROL from Friday, when it had stopped just above 36,000. As a result, the euro continued to drop on Bucharest’s foreign exchange market to levels last heard of two years ago.
In doing so, the exchange rate put an end to the market’s temptation to build up expectations of the resistance of the so-called psychological thresholds. This is because a 35,515 ROL/EUR rate on February 14, 2005 was not part of any forecast. Even the boldest forecast had not predicted this till some time in April. Why this? “It was too much.” The expectations of a rescue mission were somewhat justified after what happened in January, when the NBR bought more than 200 million euros without the market noticing anything other than the rise in prices. The NBR now seems bent on contradicting these expectations
“Yesterday’s exchange rate when the euro reached 35,515 ROL clearly shows that the central bank does not have an exchange rate target. Moreover, as specified early in November, the central bank interventions will occur infrequently. This does not necessarily mean the central bank will not intervene at all. It will keep intervening whenever analysis shows it needs to, without commenting on its interventions or announcing them either,” said Adrian Vasilescu, the advisor to the NBR Governor.
Now that the 36,000 ROL/EUR threshold has been exceeded, exercises in forecasting no longer look like the products of a wild imagination when predicting 25,000-30,000 ROL/EUR rates for the second half of the year. Such forecasts are based on the fact that sudden significant outflows of foreign currency are unlikely to occur at least until the beginning of next year, while inflows stand a lot of chance of continuing to grow. Besides speculative capital, foreign currency inflows are expected for 2005 from older privatisations that have not yet been paid, as well as from new privatisations, remittances from Romanians working abroad and the increasingly clear tendency to convert foreign currency savings to ROL.
For this reason, yesterday’s exchange rate collapse served only to worsen the fears of holders of foreign currency – whether individuals or companies – since they can no longer imagine the exchange rate coming back to 38,000-39,000 ROL/EUR in the near future and could cut their losses caused by the unexpected appreciation of the ROL.
BCR’s exchange offices were buying euros at 35,000 ROL yesterday. BRD was paying 35,100 ROL, while Raiffeisen Bank was taking 35,350 ROL. Selling prices ranged between 36,000 and 36,250 ROL.
“As for the exchange rate yesterday, it is ‘easy to read into it’ that the foreign currency supply remains generous. My question is why aren’t exporters doing something and buying this surplus, given their need for foreign currency? The time of subsidies via the exchange rate is over. It is now time for subsidies through performance, and this requires retooling, and retooling requires foreign currency because imports of equipment are needed,” said Mr Vasilescu. zf@zf.ro