BCR: The RON is undervalued

Macroeconomic bases improved these years and show that the Romanian Leu (RON) is undervalued, while the recent exchange rate increase is the result of investors’ perception, according to BCR analysts, which somehow contradict the governor of the National Bank of Romania (BNR), Mugur Isarescu, who does not rule out a deterioration of the basics, Mediafax informs. “We are within the 4.2-4.5 RON/EUR interval. We estimate an exchange rate of 4.39 RON/EUR at the end of this year, very close to 4.4 RON/EUR. The rate is formed freely, and the market is always right, while the macro models that try to see the nominal exchange rate actually calculate a balanced one. (…) The model shows that the RON is undervalued,” said Dumitru Dulgheru, economist with BCR. BCR analysts consider that curbing deficits, returning to economic growth and decreasing the interest rate differential are macroeconomic evolutions that hint to an appreciation of the RON towards a balanced exchange rate around 4 RON/EUR. BNR Governor Mugur Isarescu said Wednesday that the present increase of the exchange rate seems to be a small-scale reaction to the recent political evolutions, but the new level might also reflect a modification of fundamental macroeconomic principles, as quotations stabilised by without any intervention Wednesday. BCR experts however say their model shows that the RON would be undervalued at an exchange rate of 4.5 RON/EUR and would be overvalued if the rate evolved towards 3.5 RON/EUR.

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