The domestic currency lost ground to the euro, and the leu/euro exchange rate rose to more than 4.56 lei to one euro, the high of almost five years, in March, unhampered by Romania’s central bank. The rise of the exchange rate made some analysts believe the central bank was leaning towards moving up the “comfort interval” of the leu/euro rate towards 4.6, considering it would stop the depreciation pressures when the exchange rate came close to this threshold in the previous years.
Some economists believe the leu depreciation trend was also because of the populist actions of the government, which risk driving the budget deficit to more than 3% of GDP. The new public sector employee wage bill still makes fiscal slippages possible.
The leu lost ground to the Swiss franc, as well, so the exchange rate reached RON4.25 to CHF1 but gained almost 1% on the US dollar, reaching RON4.26 to USD1.
The exchange rate trend remains an extremely sensitive issue for Romanians considering about half of the loans consumers and companies took are foreign currency loans, mostly euro-denominated. Under the circumstances, the leu depreciation episodes have a significant psychological effect on Romanians. The most important consequence of the leu depreciation is a heavier burden on those who took out euro or Swiss franc loans.
Government paper yields rose in the first quarter, reaching 4% for a ten-year maturity, the highest since the summer of 2015.
The three-month Robor, used as a reference for calculating the interest of most leu loans fluctuated between 0.80% and 0.87% per annum, and the three-month Euribor stood at about 0.3%.
(English version by Loredana Fratila-Cristescu)