The national currency stabilized near to3.95lei/euro after plunging down to four-year lows during the day, as prime minister and NBR governor’s messages failed to lift the quotations of the leu.

National currency might drop down to 4lei/euro or even lower as long as National Bank of Romania is not intervening in the currency market, Nicolae-Alexandru Chidesciuc, ING Bank’s senior economist stated.
Dragos Cabat, managing partner with Financial View said a steep depreciation of the currency always takes by surprise importers, unless they have already positions shielded by currency hedging operations. “Sharp currency exchange variations are dangerous for economy both for importers and exporters in the shock they trigger on short-term sale and clients,” said Cabat, who previously worked for financial groups namely UniCredit, OTP or Citi.

Financial advisor says companies that reel from this climate are likely to sharply modify price margins, in an effort to cover currency exchange fluctuations. “This thing may visibly cut companies’ sales volume.

Furthermore, it is forecasted a slowdown or delay in investment projects; on a short-run, the off-balance of trade climate, and on medium term, to offset the trade’s balance beam, whereas major economic growth and high inflation are at stake,” Cabat pointed out.

Leu’s meltdown was steeper than in case of other emerging currencies in the region.

The sharp decline of leu can entail inflation boost and new measures to raise NBR’s benchmark rate, namely higher installments and less accessible loans at banks.

“I believe a 4lei/euro currency exchange rate will trigger both inflationary pressures and high inflationary projections. Impact of the foreign currency exchange rate is very high, the inflation target for 2009 being very difficult to achieve at 4lei/eur exchange rate,” Ionut Dumitru, Raiffeisen Bank’s senior economist stated for Wall-Street.

Moreover, the mistrust in the national currency geared by a fast depreciation can lead to a migration of saving deposits towards foreign currencies, which is extremely dangerous for economy, according to Ionut Dumitru.
Management consultants surveyed by Wall-Street said importers would have to take into consideration the possibility of short and medium-term currency variations.

“Given the sharp decline of leu in the past few days, importers have to make larger payments for same commodities acquired from euro zone,” said Adriana Miu, Consultant Ensight Management Consulting.
Thus, the natural sequel of these events would be importers’ attempt to transfer the depreciation in prices of acquired products, which will be more or less accepted by the market, given the industry and competitors.

“In these terms, importers who are well-positioned against foreign currency exchange shock will be those that have a major negotiation power and will manage to get good prices for products imported,” Ensight representative added.

As for importers/exporters, importers will be negatively affected by exchange rates, while exporters will benefit of a favorable juncture although restricted at some extent, as Romania’s trade relations with other countries are affected by international crisis.

“On the other hand, considering the evolution of interests, in context of hardened lending conditions adopted by banks in the upcoming period, and growth of funding costs, companies will tend to approach a more prudent position”. Therefore, they will be directed towards funding from own sources or from parent-companies over loans from banks.

Viorel Cernea, consultant at Ensight Management Consulting, has a more concrete approach, saying it is hard to imagine that importers will be freed from pressures at a 10% markup of imports. “Any company frames their budget blueprints taking into consideration the currency exchange rate for that specific interval. This is why any downturn from the variation margin considered being predictable may lead to drawbacks,” stressed Viorel Cernea.

The trade deficit must be lowered which will surely harden coverage of wages raise, therefore their growth rate will drop soon, NBR governor, Mugur Isarescu emphasized.

Romania’s negative balance of trade mounted 11.9% in the last seven months compared to similar interval of 2007, up to 9.4 billion euros, mainly due to trade balance shifts, according to data made public by National Bank of Romania.

Translated and adapted by Camelia Oancea.