The National Bank of Romania (NBR) has lost in the last three months everything it had managed to add to its foreign reserve last year, but the money was spent to prevent the ROL from losing more ground against the single European currency. The National Bank’s foreign reserve has dropped 550 million euros in the past three months, after having grown only 505 million euros in 2003.
In fact, NBR saw its forex reserves drop for the third month in a row in January 2004, down 48.2 million euros to 6.35 billion euros.
The decline was chiefly triggered by NBR’s sales of foreign currency on the interbank market, which began last November and continued all through January. Sales of foreign currency on the interbank market amounted to 332 million euros in the past three months alone.
Pressure came mostly from the trade deficit, which started spinning out of control in the second half of last year. It then became clear that the National Bank was not going to use the ROL’s depreciation to contain the mounting trade deficit, so the sale of euros on the forex market was the solution it chose to prevent a potential drop of the domestic currency against the euro. Theoretically, a weaker ROL would have boosted Romanian exports and, implicitly, would have secured a certain equilibrium for the trade balance, but the central bank has favoured the ROL/EUR exchange rate over inflation.
Even though Government officials late last year painted a glorious picture of 2003’s macroeconomic parameters, the actual figures (which are beginning to take shape) show a completely different reality. The unrestructured economy is boosting the trade deficit problem, which is now resting solely on the National Bank.
Moreover, the market is still waiting for the non-monetary set of measures, which Finance minister Mihai Tanasescu has promised ever since the end of last year and which was supposed to downsize the economic slipups posted in the past few months.
According to the agreement with the International Monetary Fund (IMF), the Executive should have endorsed measures likely to help cut the current account deficit by 1% of the Gross Domestic Product, to less than 6% of GDP. The National Bank, through its monetary policy, was supposed to supply a cut of 01.%-0.2% of the Gross Domestic Product.
At any rate, NBR’s foreign currency reserve may see smaller growth this year as compared to 2003, as the surging trade deficit needs to be financed, which will trigger additional costs for the central bank.
NBR managed to add some 2bn euros to its foreign reserve in 2002, but this growth pace was practically reduced to about 25% in 2003, when the increase was only 505 million euros. Last year’s growth was not enough in a year when imports saw a spectacular evolution, up almost 14 percent.
As the figures show, the last months were characterised by sizeable deficits on the forex market, as foreign currency sales to clients were much higher than purchases. According to interbank analysts, this situation was triggered by the more pronounced need to finance imports.
oana.nuta@zf.ro