The RON/EUR exchange rate slipped below the 3.55 RON/EUR threshold in recent days to reach its lowest value for the last two and a half years due to the currency surplus on the market and a lack of intervention by the National Bank.
The official exchange rate calculated by the NBR for yesterday was 3.5447 RON/EUR, down 85 points from the previous day. The RON lost ground against the dollar yesterday due to the situation on international markets, with the official exchange NBR climbing to 2.9543 RON/USD, 118 points more than at the end of last week.
The RON has gained nearly 11% since the beginning of the year, most of which occurred in the first quarter. The National Bank later maintained the exchange rate at around 3.61 RON/EUR for approximately three months by absorbing hundreds of millions of euros from the market on a month-by-month basis.
Dealers realised yesterday that the central bank had no intention of defending the 3.55 RON/EUR level, though some expect the central bank to intervene when the exchange rate reaches 3.50 RON/EUR.
The NBR has kept a very low profile on the forex market this month, rarely intervening on the market, doing so only to stop the exchange rate from dropping too far, rather than containing the appreciation of the RON. The RON thus gained 1.7% in less than four weeks.
The fall in exchange rates benefits those that took out loans in euros, as well as importers, while exporters, who protested strongly in the first few months of the year when the appreciation of the RON was at its strongest, are worst hit.
The most severely affected were furniture and textile manufacturers, leading a number of companies to announce they will resort to layoffs because they can no longer make profits.
The increase in the exchange rate, however, seems to be to the NBR''s liking as its main goal is to curb inflation, with this year''s heavy price rises threatening the 7.5% inflation rate set for 2005. The floods could also have a negative impact on inflation, mainly due to the higher prices for food.
On the other hand, cheaper imported goods, due to the fall in the exchange rate, could compensate for the price rises, though this will also add to the deficit in the trade balance because of the increase in demand for imported goods.
Mugur Isarescu, the Governor of the National Bank, said at the end of last week that the appreciation of the RON could continue, explaining that more visible fluctuations of the exchange rate may occur on the market. He also mentioned the National Bank''s concern for the deficit in the balance of foreign payments, which could widen in the case of excessive appreciation of the RON.
Last month''s appreciation of the RON was also fuelled by the foreign currency surplus that usually occurs in the summer months when many Romanians working abroad return home with money.
Money from Romanians returning home adds to the foreign currency surplus that has existed for several months due to investment and foreign speculators, who still expect the appreciation of the RON to continue given that interest rates for RON are still higher than for euros or dollars.
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