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Due to increasing anxiety, BNR's intervention is demanded to stop inflation

The Central bank might intervene this week, the analysts say, in order to support the RON whether the exchange rate reaches a level of RON 4 - 4.1 per EUR. The official exchange rate reached on Monday RON 3.9410 per EUR, the lowest in three years.

Bucharest - The Romanian National Bank might intervene this week in order to support the RON and to keep inflation under control, after the national currency depreciated with over 10 pc during the last month, which is close to the minimal value of the last four years, the analysts interviewed by Reuters declared, as quoted by Mediafax. The intervention of BNR will be required, in the analysts' opinion, in order to prevent a possible crisis of the banking system. Yesterday, BNR has established an official exchange rate of RON 3.9410 per EUR, a level almost 0.07 RON higher than the one published at the end of last week. Therefore, the national currency lost 1.78 pc, as the national bank has announced an exchange rate of RON 3.8720 per EUR, thus reaching the lowest level of the last three years and ten months.

The exchange rate announced by BNR on Monday is the highest of the last 45 months. A higher value was only reached on December 31, 2004, when a EUR was evaluated at RON 3.9663.

As for USD, the official exchange rates published by BNR on Friday and respectively on Monday showed a depreciation of RON 0.11 to the USD, as it reached RON 2.9054 per USD compared to RON 2.7912 on Friday.

The analysts declared that the National Bank might have to intervene in order to support the RON if the exchange rate reaches a level of RON 4 - 4.1 per EUR."

"BNR has a lot to lose if the EUR/RON exchange rate will substantially increase whether the psychological level of 4 pc. Therefore, it is most likely that the bank would intervene on the market, and it might happen this week," Miroslav Plojhar, analyst for JP Morgan declared.

The currencies of all regional states - including Poland, the Czech Republic and Hungary - have decreased with 3.4 - 4.5 pc since September 12, when the American investment bank Lehman Brothers submitted a request of protection based on the bankruptcy law, yet analysts declared that the local banks will not be affected as they are quite strong.

Analysts: Romania, the most vulnerable country of the region

In Romania, the financial crisis led to increasing anxiety, expressed by rating agencies and by the International Monetary Fund, according to whom the country is more vulnerable than the rest of the region due to the high current account deficit and to improper wage and tax policies.

"They should intervene and stop the depreciation, because it will have a major inflationist impact and will make all expectations referring to impact explode," Ionut Dumitru, Chief Analyst for Raiffeisen Bank Romania declared.

According to the latest estimations published by analysts, the inflation might decrease with approximately 6 pc during December, yet it will not meet the 3.8 pc target announced by BNR, with a variation limit of 1 pc." In September, BNR mentioned the monetary policy interest rate at 10.25 pc. Analysts considered that the monetary policy will become increasingly strict due to the promises of the great political parties to apply a more permissive tax and wage policy before the Parliamentary elections of November 30.

In the region, the National Bank of Serbia has already intervened in order to stop the lowering of the RSD, after Ukraine bought its own currency on Friday at an exchange rate of UAH 5 per USD.

"We witnessed interventions in Ukraine and Serbia. The next one will occur in Romania," Elisabeth Gruie, analyst of BNP Paribas declared.

Isarescu: ‘Exchange rate within normal limits'

Central Bank Governor Mugur Isarescu yesterday explained that, given the current international financial developments, ‘the exchange rate is moving between normal limits'. He added that our banking system is safe. Isarescu and PM Tariceanu met to discuss macroeconomic developments. After the talks, PM Tariceanu said, in case of necessity, Romania would take measures to contain the effects of the financial crisis similar to those some European countries are already taking. ‘Romania, like other European countries, can take measures in case of necessity. It is pointless to discuss at this stage any itemized measures because we don't have a problem yet' Tariceanu said. Authorities in Germany, Ireland and Denmark have announced they would offer 100 per cent protection to bank deposits. Austria has raised its protection on deposits and Sweden says it will cap its guarantees on deposits at the double of the current sum. Other measures taken by some European countries have been the partial nationalisation of some banks and the opening of long-term credit lines for banks.

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Tags: national declared bnr romania level exchange might intervene analysts order inflation

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