The fall of the Ungureanu Cabinet stops the series of key interest cuts operated by BNR at 5.25 pc, Governor Mugur Isarescu confirmed.
The reference exchange rate announced by the National Bank of Romania (BNR) reached a new historical peak at 4.4168 RON/EUR, up RON 0.0198 (1.98 Ban) from Monday’s level, as the RON tempered its devaluation towards the middle of the day, following the indirect interventions of the Central Bank, Mediafax quotes dealers as saying. Against the end of last year, when the EUR was quoted at RON 4.3197, the exchange rate announced Wednesday is 2.2 pc higher. Speaking about the historical peak reached by the European currency, incoming PM Victor Ponta said that the Board of BNR already met over the issue, and voiced his hope that Governor Mugur Isarescu avails of methods to keep the exchange rate under control.Yesterday, at the opening of the trading session, banks were quoting the EUR at RON 4.4300 – 4.4330, much above the closing of Monday’s session, when it traded at 4.4145 – 4.4180 RON/EUR. Later, the rate started to decrease, following indirect interventions exerted by the Central Bank, dealers say, and around 10.10 AM exchanges were being conducted at 4.4155 – 4.4175 RON/EUR.The annual interests charged by commercial banks Wednesday for one-day deposits rose from 4.14-4.64 pc to 4.75 – 5.25 pc. Analysts anticipated that interest rates will get closer to BNR’s key interest rate of 5.25 pc, due to forex interventions. The Romanian currency took a worrying plunge after the fall of the Ungureanu Cabinet, which fuelled concerns over the measures that will be adopted by the new Executive. Quotations reached historical peak values both Friday and Monday.Tuesday, May 1, was non-working day for Romanian banks, but international players traded EUR against RON up to a maximum exchange rate of 4.4675 units, dealers say.ING Bank Economist Vlad Muscalu believes that the market will remain tense at least until the plans of the new Cabinet become clear. “Volatility might persist beyond these clarifications, if the new executive shows less interest for fiscal discipline. The risks associated with such a scenario seem significant enough, if we consider the plans presented in the past by the former opposition, which could have to demonstrate that it is the opposite of the former governments that reduced public expenses and increased taxes,” reads a bank report.The Administration Board of BNR yesterday decided to keep the monetary policy rate unchanged at 5.25 pc per annum, thus stopping the series of consecutive interest cuts that started in November last year – a move that had been anticipated by analysts after the fall of the Ungureanu government last week. The Board also kept in place the current levels of minimum reserve requirement ratios on both RON-denominated and foreign currency-denominated liabilities of credit institutions, at 15 pc and 20 pc respectively. BNR reaffirms its intention to adequately manage the liquidity existing in the banking sector.According to the analysts of Erste Group Research, BNR’s decision to keep the key interest rate and reserve requirement ratios unchanged was motivated by political turbulences and the expectations regarding a possible inflation surge in the second half of this year. Despite the rapid nomination of a new Cabinet, the political climate remains unstable, the analysts of BCR consider in a note made public by Erste Group Research this Wednesday. The bank anticipates that BNR will maintain the monetary policy rate at 5.25 pc for the rest of the year, while the RON/EUR exchange rate will stabilise in the interval 4.35-4.4 pc on a short term. The scenario however can be influenced by local political instability and the difficult European context.On the other hand, the analysts of British consulting company Capital Economics consider that the decision made Wednesday by the Central Bank might be only an interruption of the key interest reduction cycle, which will resume when the political situation – and the RON – will stabilise. BNR might thus further cut 0.25-0.5 per cent points of the key interest this year, down to 4.75-5 pc, British analysts say.
Isarescu: One cannot speak about a significant depreciation of the exchange rate
The devaluation of the RON seems to be a small-scale reaction to the political evolutions of these days, but one should not rule out the possibility of the new level reflecting a change of macroeconomic basics, BNR Governor Mugur Isarescu said. Wednesday, quotations stabilised by themselves, he added. Isarescu mentioned that one cannot speak about a significant depreciation of the exchange rate, adding that BNR stopped the series of key interest rate cuts it operated these months, because of political evolutions.“We must be careful with the economic and financial stability of the country. We are in a rather difficult European context, with a real restructuring of the European financial system, even of the global one. All of these, superimposed to the electoral and political evolutions at home, brought us to the situation of interrupting the cycle of reductions. Neither myself, nor the Administration Board of BNR can say anything about how and when this cycle will resume,” BNR Governor Mugur Isarescu said.According to the Central Bank official, the inflation rate will stay within the target interval for the entire forecast horizon of the BNR, thus it would have permitted new interest cuts
Foreign exchange reserves of BNR, down EUR 268 M in April
The foreign exchange reserves of BNR decreased by EUR 268 M in April, to EUR 34.33 bln, following outflows worth nearly EUR 1 bln, while inflows only amounted to some EUR 700 M, the Central Bank announces in a press release. Inflows to the foreign exchange reserve reached EUR 698 M in April, representing payments into the European Commission’s account, changes in the foreign exchange reserve requirements of the credit institutions, inflows into the Ministry of Public Finances’ accounts, income from the management of foreign exchange reserves, a.s.o.During the same month, the foreign currency reserve had EUR 966 M outflows, representing changes in the foreign exchange reserve requirements of the credit institutions, interest and principal payments on foreign currency public debt, a.s.o.The gold stock has held steady at 103.7 tonnes. However, following the change in the international price of gold, its value amounted to EUR 4.190 bln. The international reserves of Romania (foreign currencies and gold) on April 30, 2012 stood at EUR 38.52 bln, compared to EUR 38.75 bln on March 31, 2012. During the month of May 2012, payments due on public and publicly guaranteed foreign currency denominated debt amount to EUR 1.02 bln.
