Romania is preparing for a new review visit from the International Monetary Fund, which analysts expect to go smoothly.
On the other hand, if the recent protests expand, investors could fear a social and political instability, namely higher risks, translating as more expensive financing.
On the forex market Friday, the leu traded just below 4.33 to the euro in the first half of the session and climbed to a high of 4.34 to the euro in the second half.
As far as its CDS is concerned, Romania ended the week at 450 basis points, slightly down from the preceding week, while Hungary’s risk premium was at 675 points.
“There could come a time when investors, markets, could start to single Romania out. There are European countries where the measures already taken in Romania are only in the early stages. (…) If the protests end, we could have a slight advantage,” commented analyst Aurelian Dochia.
S&P on Friday downgraded Italy, Spain, Portugal, and Cyprus by two notches, and France, Austria, Malta, Slovakia, and Slovenia by one notch.
Negative consequences on Romania could be felt in the banking system, considering that the parent banks of local subsidiaries will get more expensive financing, as well as amid investors’ risk aversion.
However, the success of recent bond issuing in Slovakia and Poland indicates a rebound in appetite for emerging Europe after the market was frozen at the end of 2011.
Domestically, the macroeconomic situation is stable, with Romania managing to adjust its main imbalances. The financing of the budget deficit is going well, with the Finance Ministry having launched several government bond auctions where, given the lower costs, it was able to borrow more than it had planned to.
Dochia says part of Romania’s advantage in investors’ eyes was its internal stability, considering that no violent protests had occurred, as was the case in Greece and Italy, but it remains to be seen how the internal situation evolves.
Ionut Dumitru, chief economist of Raiffeisen Bank Romania, says a new wave of risk aversion is to be expected over the coming period, which will affect Romania, as well. “But let’s hope the markets will start to differentiate between countries,” he says.
The Raiffeisen economist does not rule out a negative effect through banking, financing becoming more expensive. “Financing in euros will most likely become more expensive, but this could have the positive effect of encouraging lending in lei.”
(English version by Daniela Stoican)