Romania’s currency weakening by 2% in just a week in January was the effect of multiple factors including a “speculative attack” hopefully repelled by the central bank, Romania's National Bank (BNR) governor Mugur Isarescu explained in a press conference after the February 7 monetary policy board.
The RON suffered its sharpest depreciation against the euro since the political crisis in 2012 when President Traian Basescu was suspended. The move was triggered by “some big foreign bank” (JP Morgan, according to unofficial sources quoted by Profit.ro) posting a “sell” recommendation for Romanian assets.
“Weak, very weak…,” Isarescu commented, explaining that even though the potential “speculative attack” took place during the night (when the market was closed in Romania), the central bank managed to prevent further losses.
Isarescu admits, however, that there are also fundamental drivers behind the currency’s weakening, primarily the Current Account deficit of some 4% of GDP (can be financed but is on the verge of becoming unsustainable, Isarescu explained).
A third factor that contributed to the sudden weakening of the national currency in January was the Government’s emergency ordinance, which stipulated a tax on financial assets calculated proportionally with the interbank interest rates - ROBOR. The tax is currently subject to negotiations, although BNR does not see any use in such negotiations and suggests that the Government should drop the idea.
In his press conference, the central bank governor left the technical discourse aside to describe how he perceived the recent turbulence. "The boat was floating just fine and comes a loony and starts to shake it, just before Christmas," he said. "There was the ordinance, the turbulence, and the misunderstanding. If I didn't understand what that was all about, how can we expect that others did," he added. Isarescu didn't mention who the loony was in this case.
Speaking of the developments during last year, BNR governor admitted that the headline inflation entering the 2.5% +/- 1pp target band came as a surprise, thanks to the decline in the price of crude oil.
(photo source: Bnr.ro)