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March 29, 2023

Bankers, analysts, voice increased concern

BNR will avoid interventions, exchange rate cannot be stable, Central bank official warns.

The National Bank of Romania (BNR) will try to avoid the intervention on the foreign exchange market, but the exchange rate cannot be very stable in the coming period, in the present macroeconomic conditions, declared yesterday the head of the financial stability division of the Central Bank, Ion Dragulin, Mediafax informs. “Whichever the short term problems, it is clear that BNR’s policy will be to avoid interventions to the extent to which the macroeconomic policies will support the monetary market. The temporary evolutions must be approached carefully, although they show vulnerability,” Dragulin said during a seminar on real estate issues. He estimated that in the present macroeconomic conditions the rate cannot be very stable in the next period. “One of the objectives for the shifting to the Euro zone is to have a credible exchange rate, in order to arrive in the waiting room of the shifting to the EUR,” Dragulin added.

The target of Romania for the adoption of the EUR is January 1, 2015.

BNR will maintain the monetary policy interest rate until the end of the year, at 8 per cent, considering the current situation of Romania, where stability is essential, declared yesterday the executive president of BCR, Dominic Bruynseels, Mediafax informs.

“Considering the present situation, I would be surprised to have any change of the monetary policy interest rate until the end of the year. Stability is of essence now,” Bruynseels said, at the launching of the event “The money school.”

He mentioned that there are no reasons to reduce the rates of the minimum compulsory reserves, in the context in which the market is liquid, while BNR can assure funds through the repo operations.

As for the instability from the political arena, he said that he does not believe that the IMF agreement will be affected, in the context in which all the parties have clearly said that they would support this commitment.

“I believe what the people want is a stable government, that would carry out the reforms requested by IMF,” said the BCR chief, mentioning that the plans of the bank do not change subject to the government. Bruynseels believes that the “current political noise” has not exerted pressure on the RON, in the conditions in which the people have understood that the problems in a ruling coalition are always possible.

At the same time, the BCR chief believes that the level of RON 4.3/EUR is correct. He also pointed out that BCR supported and will continue to support the state in what regards the possible funding needs. “We must not forget BNR can release liquidity into the market, and thus the interest rates can be lower for the loans taken from the state,” Bruynseels said. “Romania is one of the key markets where we operate and maintain our commitment towards this country,” Bruynseels said.

As for the situation of the interest rates from the local banking market, BCR chief mentioned that the deposit interest rates have begun to fall very quickly and anticipates that those for loans will follow soon the same trend.

Robert Rekkers, general manager of Banca Transilvania – among the few institutions with majority Romanian capital – declared he is surprised by the lack of political consensus from Romania, requesting a rapid solution for the settlement of the political crisis, Agerpres informs “The year 2010 will be a great challenge. I don’t believe in miracles, I don’t believe that tomorrow it will be better. But I want a consensus over a better path for the economy and the population. As a foreigner I am surprised by the lack of consensus which exists in Romania,” the official of the bank declared. “Everywhere in the world the situation improves, the stock exchanges grow, the banking interest rates decrease, optimism returns, only in Romania the situation is more depressive. But I am optimistic and I hope that the political crisis will not last for long, and a quick solution will be found,” he stressed.

The Romanian Government could be forced to cut some of its other expenditures in order to pay the salaries and the pensions if the pressures on the budget persist, in the context in which the political uncertainty risks being prolonged and is affecting the RON and the interest rates, the ING analysts estimate in a report, ‘Romania Libera’ daily informs.

‘If the pressures on the budget rise the Government will be forced to cut other expenditures in order to pay the pensions and the salaries or it will have to postpone those or other payments (such as those for investments). This could create significant arrears with negative effects on the economy not only in the last quarter of this year but also in 2010,’ the report reads.

The financial group’s analysts consider that the large interest rates on the Romanian monetary market, the ones that help protect the RON, are negative for the economy and ‘render the financing of the public deficit difficult.’

‘The political uncertainty seems to persist and could become stronger. This obviously has a negative impact on the RON and entails a higher risk for Romania. There is also the risk of economic contraction in 2010 too, in contrast to our estimate that points to a 1.6-per cent GDP growth,’ the ING report also shows.

ING estimates that this situation could be reached after Romania announced that it will postpone the issuing of Eurobonds, and the financing of the budget deficit could become a real problem considering the high interest rates on the local market and the political instability.

On the other hand, economic and financial analysts appreciate Lucian Croitoru’s nomination as prime-minister. ‘He is a specialist, therefore the nomination is a good one. However, considering what political parties had said before his nomination, the political crisis will most likely intensify,’ Nicolaie Alexandru-Chidesciuc from ING Bank said, according to ‘Adevarul’ online.

The same opinion is shared by financial analyst Bogdan Baltazar, who thinks Croitoru is a good choice for PM considering his experience with the International Monetary Fund, but he also thinks he should learn how to make decisions and how to assert his position fast.

‘He will need to learn how to assert his position in relation to the Government and within constitutional limitations, including in relation to the President,’ said Baltazar.

Stock Exchange into the red following Croitoru’s nomination

In the wake of the announcement that Lucian Croitoru is Romania’s designate premier, the main indexes at the Bucharest Stock Exchange moved into the red, following the appreciation in the opening of the trading session, ‘Evenimentul Zilei’ daily newspaper reports. The inter-banking market saw attempts at RON depreciation beyond the RON 4.3/euro threshold. With the announcement on Lucian Croitoru’s nomination for premiership approaching, the RON/euro inter-banking exchange rate wavered between RON 4.29-4.3/euro. The National Bank of Romania’s RON/euro reference rate is below yesterday’s quotation, with the RON slightly appreciating from RON 4.2940/euro to RON 4.2937/euro.

The announcement that the new premier will be a technocrat led to an upswing of 1 per cent in stock trading, in line with the positive trends on European markets.

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