Romania’s central bank (BNR) on Friday announced an official exchange rate of RON4.434 to the euro, unseen since last November. The leu was also at its highest against the US dollar in two and a half years.
“Even though Moody’s move (to upgrade Romania’s sovereign rating outlook from ‘negative’ to ‘stable’) did not have a major impact on the financial markets, the review of the rating scheduled by S&P for May 16 could be more interesting. A rating upgrade might significantly improve the appetite of investors for leu assets,” said Anca Jelea, analyst with Raiffeisen Bank.
The appreciation of the leu reduces the burden of those who have to repay foreign currency loans and could slow down the expected inflation rate increase after the introduction of the extra excise duty on fuel in April. On the other hand, it makes a negative impact on exports, the main growth driver of Romania’s economy last year.
The leu gained ground on the hard currencies at a time of decline in the yield of government paper, which analysts see as a sign of a higher interest in leu bonds from foreign investors. The yield of the five-year bonds reached 4.2% a year on Friday, and the ten-year bond yield reached 4.8% a year.
“The entry of foreign investors on the local government paper market could generate a 2% leu increase, a cap that BNR will probably set to keep exports competitive and replenish its foreign exchange reserves,” BCR analysts say.
Still, a potential escalation of the conflict in Ukraine could make investors risk averse again and change things on the government paper and forex market, BCR analysts added.
The analysts of BCR, the largest local bank, continue to see the exchange rate at RON4.5 to the euro at the end of the year. Best year-end forecast for the leu comes from ING Bank, RON4.35 to the euro. Raiffeisen Bank expects the leu to reach 4.5 points to the euro in December, while RBS sees it at 4.43 points against the euro.
The leu has already gained more than one percent against the euro since the beginning of the year, despite the volatility in January and February, when it stood at 4.55 points against the euro. It has appreciated by more than 2.5% from the record low against the European currency in January.
Analysts expect the leu to appreciate even more after mid May, when financial rating agency Standard & Poor’s (S&P) is due to review Romania’s sovereign rating. S&P is the only major rating agency still keeping the country in the ‘junk’ category.
(English version by Loredana Fratila-Cristescu)