Will BNR allow the leu to tumble to an all-time low?

The national currency is just one step from the lowest value it registered against the euro five years ago, while debtor losses persist. Financial analysts estimate that the leu will exceed the RON 4.2 /€1 level in the first quarter, and the National Bank of Romania (BNR) is expected to intervene only to avoid a sharp depreciation of the national currency. The leu could appreciate in the coming weeks, but not much and not for very long.

The country’s currency is quoted by the central bank at RON 4.1385/€1, close to its all-time low against the euro, registered on 6 January 2004, of RON 4.1438/€1. The leu exceeded that historic low yesterday on the interbank market, at RON 4.18/€1.

“What BNR can do is to avoid a sharp depreciation of the leu considering the negative feeling present on regional markets. We can expect the leu to recover in the coming weeks, even without BNR’s intervention. It will probably appreciate around RON 4/€1,” Ionut Dumitru, Chief Analyst of Raiffeisen Bank, told Business Standard.

Debtors in euro, companies which did not sign futures contracts to protect their business against exchange rate fluctuations, and which drafted their budgets based on a RON 3.6/€1 exchange rate, are now facing problems.

Radu George, General Manager of the Fildas drug distributor, said he has no special strategy to protect his business against the effects of the crisis. However, he plans to negotiate with the Ministry of Health the recalculation of the price of medications, fixed by the authorities.

The depreciation of the leu and higher interest rates, especially on lei-denominated loans, are expected to raise personal and company arrears above the €1 billion threshold, most likely in this year’s first quarter. Arrears on individual and corporate loans rose €58 million in November alone, up to €740 mln. The ratio of arrears in terms of total volume of granted loans amounted to 1.42 percent.

Business Standard