SIMILAR ARTICLES

BNR analysis: Radiography of investments in Romania – under what conditions capital accumulation occurs

Foreign direct investment (FDI) and expectations regarding the demand have a positive influence on capital accumulation in Romania, while uncertainties play an inhibiting role, especially… Mai mult

National gross minimum wage: in Romania and EU countries

  Romania ranks second to last among EU states in terms of national gross minimum wage, according to data published by Eurostat, at a level… Mai mult

Some charts: Perfect chaos in Romanian budgets. A 4-year analysis of difference between law and implementation

Although at first glance it is difficult to draft them, Romania’s public budgets are, in fact, a series of indicators and lists of revenues and… Mai mult

Tax authority’s “armed arm” was handed over to Prognosis Commission. How strongest governmental structure looks?

ANAF’s new president, Mihaela Triculescu, handed over to the National Commission for Strategy and Prognosis – CNSP the power to decide what companies are to… Mai mult

Current account deficit – Romania goes to opposite direction compared to EU countries

Romania is clearly distinguishing itself within the EU in terms of current account deficit evolution, with the second highest current account deficit in 2017 and… Mai mult

Cronicile

Romanian leu exchange rate and competitiveness – some comparative observations to neighbouring currencies

de Marin Pana , 29.1.2018

Romanian leu has depreciated against the euro in the past year by less than two percent, as an annual average, a similar value to the US dollar and much lower than the pound (the latter affected by the announcement regarding the exit from the EU).

Unlike the leu, the Hungarian forint and especially the Polish zloty appreciated last year compared to the European single currency. Apparently, the Poles had a superior evolution, but if we look more closely at the evolution in recent years, this is just about a recovery of the devaluation that was somehow higher in 2016 (more than four percent compared to just one percent in the case of the Romanian leu).

*

  • Evolution of euro exchange rates against some national currencies (2014-2017)
  • Year
  • Leu
  • Dollar
  • Pound
  • Forint
  • Zloty

*

Incidentally, the similarity between the leu and the zloty (both having the mention “new” added in the acronym and parities extremely close to each other, which in terms of retail prices makes us feel in Poland as home) was completely remarkable in 2014-2015, with the stability of the annual average euro exchange rate close to perfection.

If we look at the gains and losses of the dollar and pound, we can notice a much higher exchange rate stability in the Central European countries (where geographically we fit better than in the Balkans), with a floating exchange rate regime than in the big Western economies, less influenced by such fluctuations. Where the population does not even notice minor exchange rate variations, of one or two percent, which they consider normal.

In other words, from the perspective of the international practice, nothing special happened and there are no reasons for concerns for now. Although the gap is slightly bigger, there is no obvious difference compared to the previous three years, if we consider the difference, in terms of exchange rate, between the annual average and the end-of-year values, the latter being systematically more increased for seasonal reasons.

*

  • Year
  • Exchange rate at the end of the year
  • Average exchange rate
  • Difference

*

Romania’s competitiveness and real effective exchange rate

Let us now see to what extent the evolution of the exchange rate has affected or not Romania’s international competitiveness through costs or prices, relative to the main rivals on the international markets.

This is technically done by the so-called real effective exchange rate (REER abbreviated).

The indicator calculated based on the internationally harmonized rules from 42 countries (28 EU members + 14 industrialized countries, from USA and Japan to China, Russia and Turkey) with double weights in terms of exports (to correctly reflect the whole and not to give too much attention to the competition in the domestic market), shows an insignificant loss in competitiveness for Romania last year, according to the latest data processed and published by Eurostat.

*

  • Real Effective Exchange Rate – 42 partners (2010=100)
  • Dec 2016         Nov 2017         Difference
  • EU28
  • Eurozone 19
  • Romania
  • Poland
  • Hungary

*

The technical interpretation is a deterioration in competitiveness along with the increase of the indicator and vice-versa, the value of 100 being set for 2010. The relative appreciation of the single currency has quite clearly affected the competitiveness of the Eurozone countries and a little more the value registered for the whole EU.

The change in the latter was similar to that in Poland (which also had the highest appreciation of the exchange rate against the euro), higher than in Hungary (whose forint appreciated three times less than the zloty) and much more than in Romania, which chose the option of the acceptable depreciation but maintained its competitiveness.

Of course, it may not be the best way to preserve competitiveness and we would have the sustainable options, somehow more efficient on mid and long-term, for investments in modernisation, improving the business environment or expanding the infrastructure. But, in the meantime, balances are a daily challenge and are maintained with the means that we have available.

Unfortunately, by the channel of imported goods, all the more desirable in terms of price-to-value ratio the lower the euro exchange rate, and the one of the income growth rate that is double the GDP growth, the risk of the general price index inflation occurs.

Which makes the adjustment of the monetary policy difficult and sends us back to the economic fundamentals of the restraint in increasing wages and pensions, so as not to affect the competitiveness and not to weaken the national currency.

Mergeți în homepage ›

Publicat la data de 29.1.2018

Lăsați un comentariu


NEWS

"Iceberg" operation: ANAF announces that it selected 487 companies which are to be audited based on risk analysis

Virgil Pirvulescu, Vice President of ANAF at PwC Annual Tax Conference The National Agency for Tax Administration (ANAF) has identified 487 large and medium-sized companies… Mai mult

Commissioner Corina Cretu: There is a risk that Magurele Laser will not be completed during this budget implementation

In the absence of a rapid response from the Romanian Government to the European Commission, there is a risk that Magurele Laser can no longer… Mai mult

Romania joins countries that recognize Juan Guaidó as interim president of Venezuela

The Presidential Administration announced on Friday that President Klaus Iohannis, "as the head of Romania’s foreign policy decisions and Romania's representative at the external level,… Mai mult

AmCham Romania: Counterproductive public policies have reched an alarming level

Further to the message on the impact of OUG 114/2018 transmitted on Thursday to the organizations in the Coalition for Development of Romania (CDR), AmCham… Mai mult

Finance minister stopped borrowing money from the market. Teodorovici: We have funding resources for minimum six months

Minister of Public Finance (MFP), Eugen Orlando Teodorovici, has ordered to stop borrowing operations on the market because MFF would have all the money needed… Mai mult

BNR: If we sold foreign currency to defend Romanian leu, as PSD wants, interest rates would explode and ROBOR would go over 5-7 percentage points

The National Bank of Romania wants a "loyal cooperation" with the Ministry of Public Finance, and that involves a prior consultation with the central bank… Mai mult

Tax on bank assets was not included in 2019 draft budget

The tax on bank assets was not included in the 2019 draft budget, published on Thursday evening by the Ministry of Public Finance (MFP). According… Mai mult

Eruption on foreign exchange market: Mechanism of spiralling depreciation. Euro - sudden surge to 4,759

The average euro exchange rate, calculated by the National Bank of Romania (BNR), suddenly climbed sharply to a new record level of 4.7569 RON /… Mai mult

ANAF starts controls at large taxpayers. Mission stated: Combating phenomenon of externalisation of profits

The National Agency for Fiscal Administration has publicly announced the start of the "Iceberg" operation - a large fiscal control action targeting big companies operating… Mai mult

It becomes increasingly harder for the state to borrow: Finance Ministry has attracted only a quarter of targeted 400 million

The Ministry of Finance (MFP) has only managed to sell five-year government bonds amounted to RON 110 million out of the RON 400 million issued… Mai mult

"Perfect storm" that "calls for a crisis": Bankers - about "greed ordinance"

The most important bankers in Romania say that the effects of the tax on greed will be very serious and difficult to repair over time.… Mai mult

Increasing energy price - miners' strike brings imports up to 16% of consumption

  Rovinari power plant, part of Complex Energetic Oltenia, closed one of its energy groups on Wednesday night because of the lack of coal, as… Mai mult

A flow of initiatives against compensatory appeal: 188 of detainees released committed robberies, rapes, crimes

USR will file on Monday a bill on repealing the compensation appeals law, based on which thousands of detainees were released from prison before completing… Mai mult

Mugur Isarescu: "Ordinance weird thing" reduces monetary policy efficiency, which will not help Government

The National Bank of Romania (BNR) will convoke the National Committee for Macro-prudential Supervision, where the Ministry of Finance will be required to clarify the… Mai mult