Romanians with euro-denominated loans to repay have every reason to be more worried now, as the leu/euro exchange rate rose to all-time high, close to the 4.7 lei to the euro.
The reference exchange rate Romania’s central bank announced on Thursday was RON4.6695/EUR, up 0.2% on the end of last year. The leu depreciation stands at about 1.5% compared with June 21, 2017.
Some analysts say that the depreciation pressures may continue over the coming period, considering the macroeconomic deterioration, i.e. the rise in budget and current account deficits, the rise in inflation and domestic political turmoil. On the other hand, economists believe the leu is still supported to a certain extent by the high interest spread and by a more active management of the foreign exchange fluctuations by the central bank.
There is also pressure from capital outflows of foreign investors considering the deterioration of the sentiment towards the emerging markets amid the appreciation of the US dollar, the mounting international trade tensions due to the protectionist policies of the US and the growing Euroscepticism in Italy, as analysts say.
Even though leu-denominated loans have gained ground in the past few years, the exchange rate trend remains a sensitive issue for Romanians, considering 36.4% of the loans are foreign-currency denominated, mostly euro-denominated. Under the circumstances, the leu depreciation episodes have a significant psychological effect on Romanians.
Early this year, central bank governor Mugur Isarescu said the forex market is working as it should, the exchange rate is where the market wants it. The central bank intervenes on the market to stop heavy fluctuations of the exchange rate that “do no good” to the economy but cannot keep an artificial exchange rate against the market forces, because it would lose the foreign currency reserve, he added. He also said at the time that the monetary policy remained as announced last year: pursue a greater stability of interest rates with a greater flexibility of the exchange rate.
(English version by Loredana Fratila-Cristescu)