Short-term speculative capital having entered Romania this year is worth about one billion euros, according to NBR estimates. The money is attracted by the large difference between domestic and international interest rates and the lack of prospects for depreciation for the ROL.
"There is some pressure from the speculative capital that comes in through Special Purpose Vehicles or SPVs inclusively (Romanian legal bodies established to facilitate the access of foreign money to investments in ROL) that we know about and that plays an important role. We will answer this pressure through higher volatility of the exchange rate as part of an upward trend of the ROL, in order to make exchange rate trends harder to predict," explained Cristian Popa, NBR vice-governor.
Popa went on to say that, apart from the one billion euros in inflows, foreign currency sent back to Romania by Romanians working abroad could reach 2.2bn euros this year, based on conservative estimates alone, which only take into account the money moving through the banking system.
That said, however, the extremely advantageous yearly yields in dollars or euros of more than 20% gained from investments in ROL on the Romanian market have convinced a lot of investors to seek ways of bringing their money in through banking channels.
Estimates show there are between 2 and 3bn euros available for investments in monetary instruments in Romania, with the risk of seeing withdrawals of 4-6bn euros in six months' time.
The opening up of government securities in ROL could be delayed, however. Popa explained that certain safeguarding measures concerning the deregulation of banking deposits might be taken at a later date if speculative pressure is found to be too heavy. While the IMF has strong reservations about the deregulation, the EU is heavily in favour. There are two important categories of transactions for which clearance is not scheduled to be dropped before EU accession: operations involving financial instruments commonly traded on the monetary market; and operations involving current accounts and deposit accounts opened by residents abroad.
"We must not overlook the fact that this deregulation is one of the essential elements in gauging the capacity of an economy to cope with the competitive pressures of the EU market, where capital movement is completely free," said Dragos Negrescu, and expert from the European Commission Delegation in Bucharest.
Negrescu added it is not possible to claim simultaneously that the necessary conditions for capital account liberalisation have not been met because of the interest rate gap, and that at the same time accession is perfectly feasible in 2007.
"Accession carries with itself extremely powerful antibodies that can fight speculative temptations," Negrescu warned.
Rising foreign currency inflows have been visible on the market throughout this year, which saw NBR forced to increase its foreign exchange purchases to more than 600 million euros in a single month in order to prevent significant appreciation of the ROL in nominal terms.
razvan.voican@zf.ro
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