In the week following the elections, the National Bank of Romania (NBR) spent approximately EUR 6 billion from foreign currency reserves to support the RON, according to an estimate by Erste Group Bank analysts.
The NBR most likely made a new intervention on the foreign exchange market on Monday, judging by the evolution of the EUR/RON exchange rate.
The NBR intervened several times on the foreign exchange market to defend the RON and keep depreciation under control, in the context of government and elections crises. This reduced the quantity of RON in the monetary-banking market and led to an increase in ROBOR and short-term financing rates, and the increase in interest rates reduced the possibility of additional speculation on the RON. The increase in interest rates was reflected in the pressure easing on the depreciation of the national currency on Friday.
Note: Short positions become more expensive when interest rates rise, under limited liquidity conditions. At the same time, the attractiveness of positions in RON increases.
RON resumed decline after 1:00 p.m. fix
Erste Group Bank analysts add that the current critical level for the National Bank of Romania appears to be 5.15 RON/EUR. They point out that the RON has stabilized around 5.1 for 1 euro, reflecting a depreciation of over 2% compared to the pre-election level.
In all likelihood, the NBR intervened on the market on Monday as well (see chart above), to attack short positions on the RON, and by 12:59, the exchange rate was fixed by the NBR right below 5.1 RON per euro.
At the official 1:00 p.m. fixing, the exchange rate announced by the NBR was 5.0993 RON/EUR, slightly up from Friday’s session of 5.1165 RON. After the official fixing, the RON slightly depreciated, with the euro exceeding RON 5.1 at 1:30 p.m. Comparatively, against the dollar, the RON continued to depreciate, reflecting an evolution lacking interventions.
Positive evolution of interest rates – slight capital inflows for government bonds
As for yields on Romania’s 10-year RON government bonds (ROMGB), they fell to 8.2% on Monday, returning after a peak of 8.6% on Thursday. Short- and medium-term yields also fell, with yields on 2-year and 3-year government bonds falling to 8.48% and 8.62%, respectively, suggesting more solid buying after last week’s massive sell-off.
Interest rates remain high on the money market, with the 3-month ROBOR rate announced by the NBR at 7.31%, a weekly increase of 140 basis points. The tensions in the liquidity market are fueled by the NBR’s foreign exchange interventions, which through its foreign currency sales reduced the amount of RON on the market.
At the same time, interest rates for 1-day financing (T/N – which shows the cost of borrowing in RON for 1 day, an indicator of liquidity tensions in the market) decreased from 7.08% on Friday to 6.87% on Monday.
Crucial week for markets and investors beyond elections – Important data to be issued by NIS
In addition to the elections on May 18, long-awaited by the markets in the context of the need for quick and vital decisions for Romania’s fiscal and budgetary and economic trajectory, this week will be a very important one in terms of statistical data.
Romania’s consumer price index (CPI) is to be published on Tuesday, with annual inflation expected to slow. However, the annual inflation rate is expected to remain high, despite a possible positive influence from lower energy prices.
Data on Romania’s current account balance is expected on Wednesday, as well as our country’s industrial production, which could show a sharper annual decline due to the base effect. Moreover, Thursday is GDP day, with the publication of Q1 results in Romania (along with Slovakia, Poland and Slovenia). A modest GDP growth is expected in Q1 2025 for Romania, amid slowing consumption and a negative contribution from net exports, although investments may have sufficiently supported economic activity.
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