“No need for further devaluation”

The currency exchange rate is still at a “feasible” level, especially in the current context, given the correction of the CA deficit, “faster than we had expected”, said BNR governor, Mugur Isarescu.

“There is no need for further devaluation. The currency exchange rate is at a sustainable level for this period”, said the governor on the evolution of the currency rates after the conclusion of IMF-led aid arrangement.

The news on the agreement has engendered a fresh rebound of the leu, BNR announcing a benchmark currency rate of 4.2723.

Seemingly, the quotation of the euro was not a concern for Mugur Isarescu, not even in January when he said the European currency was likely to go up even more and that the central bank would not intervene to back up the leu. “Do you think it climbed to high?”, said Isarescu as he was walking on the stairs of the institution.

National currency was making history on January 9, hitting 4.18 lows on a market flooded by large trading volumes.

The leu continued its rally at the end of yesterday’s session, up to 4.26lei/euro, on rescue package hopes, in contrast with the evolution with other currencies in the region.

“The leu continues its uptrend that started once the loan talks with IMF began. The statements of BNR governor have surely contributed to this rally. The governor had said previously that a part of the funds would go back up the local currency”, said a market dealer.

An IMF rescue package does not alter the fact that the leu remains fundamentally overvalued, reads a Capital Economics research.

“The currency has remained suspiciously stable during the recent turmoil, perhaps suggesting that the National Bank has been intervening to smooth fluctuations in the exchange rate”, analysts with Capital Economics said.

Nevertheless, such actions would almost certainly be forbidden under the terms of an IMF agreement. If so, the leu could ultimately fall by another 15% to below 5.00/euro.

Still no change in the reserve requirements

National Bank of Romania said it would not yet lower the level of reserve requirements for foreign currency liabilities held by banks, but it would likely change their content, said Mugur Isarescu.

“It is possible to change the layout of reserve requirements but not their rate yet. We will begin with foreign currency, given the recent improvement of liquidities in lei, through the repos recently operated by BNR, and to help the funding of budget deficit surplus”, Isarescu added.

Prior to this statement, the governor said it would be much wiser for BNR to exclude long-term liabilities account classes from the calculation of reserve requirement. “This way, we would stimulate long-term financing, which in turn, would support lending, and reduction of banks’ discomfort in holding short-term liabilities,” said Isarescu.

This layout reshuffle of required reserve ratio would lead to a reduction of RRR’s level.