Leu depreciated yesterday up to RON/EUR 4.4684, after news that the President had refused to sign the memorandum with the International Monetary Fund surfaced.
The national currency came out of stagnation late Monday and it depreciated after news that the President had refused to sign the memorandum with the International Monetary Fund surfaced.
Leu continued its decline in the first half of yesterday, when BNR (the National Bank of Romania) issued a reference exchange rate on the rise, of RON/EUR 4.4684, the highest level of the last two and a half months. Tuesday’s exchange rate was 3.25 bani higher than Monday’s exchange rate of RON/EUR 4.4369. The central bank announced a higher exchange rate on September 25, of RON/EUR 4.4711. The RON/USD exchange rate also went up by 1.91 bani to RON/USD 3.2936. Leu also depreciated relative to the Swiss franc, with a refence exchange rate of RON/CHF 3.6352. The exchange rate went up to a maximum of RON/EUR 4.4780 on the interbanking market, with rollovers on the rise, according to dealers who also say players are relying on the short-term depreciation in national currency, on account of the IMF agreement having been suspended.
As early as Monday evening, Prime Minister Victor Ponta warned that problems with exchange rates and interest rates paid by the Romanian state would be visible in the coming days. Nonetheless, in a report presented early Tuesday, ING Bank analysts mentioned they expect “limited consequences even if the agreement with international financial bodies is (eventually) broken, given that the current agreement is precautionary and investors would probably trust that Romanian authorities have learned their lesson in fiscal discipline by now,” according to HotNews.ro. In the beginning of the interbanking session, the euro was rated at RON 4.4420/4.4450, 0.8/0.95 bani (approximately 2 percent) higher than the level reported Monday around 4.30 in the afternoon, of RON/EUR 4.4340/4.4355. Around 1.00 p.m., the euro was rated at almost RON 4.47 on the interbanking market. Early Tuesday, interest rates offered by commercial banks for one-day maturity deposits attracted and placed in lei amounted to 1.58/2.08 per cent per year. The one-week maturity returns ranged between 1.6 and 2.1 per cent per year.
Capital market is primarily affected by foreign market adjustments
In turn, BVB (the Bucharest Stock Exchange) dropped by 0.36 per cent in the first part of the day and brokers claim the drop was determined primarily by the trajectory of external stock exchange markets, although they do not rule out a possible influence caused by President Basescu’s decision. Depreciation was reported on the domestic capital market in the very first minutes of the session, re-aligning it with external stock exchange markets and putting an end to the increasing trend of the last four days.
“The market does not react only to the President’s decision, but also to drops reported on international markets, which are in turn determined by ever higher expectations that the bond purchase program carried out by Fed (editor’s note – the U.S. central bank) would be reduced in the near future,” Gabriel Necula, Departmental Head of Transactions at Alpha Finance, stated for Mediafax. In the first part of Tuesday’s session, the BET index dropped by 0.38 per cent and the BET-NG index for energy company bonds was 0.57 per cent below Monday’s level. The BET-FI index for shares owned by the five SIFs and bonds owned by Fondul Proprietatea (FP) dropped by 1.15 percent. SIF shares dropped by 0.62 per cent (SIF Moldova) and 2.48 percent (SIF Muntenia), while Fondul Proprietatea bonds dropped by 0.41 per cent.
Even though the suspension of the IMF memorandum and the drops reported on external markets have not impacted share prices significantly, they have had a more visible effect on rollovers, which have dropped. Thus, investors have traded a total of RON 14.7 million (EUR 3.3 million) in shares, half of the liquidity ratio for the same period of the previous session, namely RON 30.3 million (EUR 6.8 million).