National currency oscillated significantly during yesterday’s interbank session, with a strong depreciation trend in the beginning of the day, followed by appreciation. Then, towards the end of the day, the exchange rate crossed the psychological barrier of 4.4 RON/EUR, which is a new absolute high, Mediafax reports. Around 4.30 PM, Leu was trading at 4.3845 - 4.3875 RON/EUR, above the previous closing of 4.3750 - 4.3780 RON/EUR. Towards the end of the day, the exchange rate continued to soar up to a maximum of 4.4010 RON/EUR.

According to dealers, the massive sales of foreign currency started when the parity went past the 4.39 RON/EUR threshold, considered by local and foreign players as a level appropriate to mark their profits. Then quotations gradually declined, down to a day’s low of 4.3370 RON/EUR. Dealers did not rule out an indirect intervention of BNR in support of Romanian currency. Later, parity returned on a slight increase, also driven by an adverse regional context, with currencies of neighbour countries losing up to 0.4 pc.

The positive feeling was also fuelled by a report issued by Societe Generale - the mother bank of BRD - which recommended short positions on the EUR/RON, i.e. converting European currency into Romanian Leu, with a target exchange rate of 4.2 RON/EUR.

Economic expert Bogdan Baltazar holds that home currency drifting will come to a stop in a short while, according to his statements on Realitatea TV. “Maybe, BNR wanted to teach a lesson. It may have stepped in, yet not massively. Salary cuts and VAT increase have already been absorbed into the exchange rate, yet I don’t see the euro going beyond 4.38 RON. It’s impossible,” Baltazar specified, adding he relies on this coming Friday “psychological impact” wise, when he believes “we will have absorbed all the bad news about the exchange rate.” Exporters are the only ones benefiting from the RON downtrend, the economist holds.

Tanasescu: Romania’s “balance rate” is of RON 4.1-4.2/ EUR

The BNR reserve, of over EUR 34 bln, is sufficient to maintain the rate for at least one year, economists claim. Mihai Tanasescu, Romania’s representative at the IMF, urged for calm and underlined that, by the Fund’s calculations, Romania’s “balance rate” is of RON 4.1-4.2/ EUR, according to ‘Gandul.’

RON’s fall was not owing to a speculative strategy, but to the fact that, after a week during which pension cuts and the raising of VAT were repeatedly annulled, then approved, major companies, wealthy, as well as common, Romanian citizens rushed to the banks and exchange offices to buy foreign currency, fearing the possibility of a massive depreciation, the daily newspaper reports. Dealers are also pointing at a statement made by a Central Bank director, who announced that the rate may soar up to RON 6/ EUR. Surprisingly, the National Bank of Romania intervened on the market only verbally, attributing the record exchange rate to a “psychological shock.”

ING expects exchange rate to peak at 4.5 lei/euro

ING Bank forecasts an exchange rate of 4.3 lei to the euro for Q3 this year, with a peak anticipated at no more than 4.4-4.5 lei/euro, level where it expects the central bank would step in. ‘We do not believe that the strategy for the protection of the local currency ahs been completely set aside, as long as financial stability continues to be an important matter. However, with account given to the slow economic activity and the Finance Ministry’s massive financing needs, we find that the central bank is allowing some room for manoeuvre to the RON. Ironically enough, a strategy like this may also call for a very decisive intervention on the forex market quite soon, by that demolishing mounting expectations of depreciation. A measure like that, in our view, will occur somewhere in the region of 4.4 – 4.5 RON/EUR which we see as the peak,’ an ING analysis cited by Mediafax states. The specialists of the lending organisation note that, while the population ‘has got scared’ and is buying euros massively, companies are not yet too worried. ‘If companies too decided to start buying euros, BNR’s intervention would become almost compulsory,’ ING Bank says. ING Asigurari de Viata head Aurelia Coman says the VAT increase will adjust the company’s net profit projected in this year’s budget to RON 35-40 M compared to the RON 77.32 M it reported for 2009. She added that the preliminary figures for Q1 are within the limits set in the company’s budget counting on a five per cent year-over-year rise of income from written premiums in 2010. As a matter of fact, ING Asigurari de Viata is launching GenT, a new generation of unit-linked products approaching insurance products also containing an investment component in an entirely new way. ‘In 1998, ING Asigurari de Viata was introducing the unit-linked products for the first time to the local market; now, after 13 years of presence in Romania, gent is innovating again this category of products, all for the benefit of our customers,’ Coman further said.

Société Generale: No alternative to IMF programme

On the other hand, experts with French bank Societe Generale say government outlived the no-confidence motion two weeks ago and is highly unlikely to fall now over the same issue, according to daily ‘Romania libera.’ “As we expected, the way to reform is a bumpy one and, most likely, the difficult period will continue, yet there is no alternative to the IMF programme,” experts at Societe Generale say. German bank Commerzbank considers that the Boc Government’s decision to raise VAT will exacerbate inflation, while the deficit target is high unlikely to be met. The German bank lowered its 2010 economic growth estimate from 0.3 per cent to 0.1 per cent. “Political uncertainties will likely lead to increased RON volatility in the upcoming weeks. If the opposition really succeeds in toppling the Boc Government, economic plans will be dead in the water. This development will cause the IMF assistance to ‘return in a distant future’,” Commerzbank experts maintain.