Political crisis /Leu-euro exchange rate, at lowest average since referendum to dismiss Traian Basescu

The National Bank of Romania (BNR) announced an average rate of 4.5872 lei on Thursday, following the sharp depreciation in the first part of the day on the interbank market, from 4.5775 lei/euro on Wednesday to 4.5871 at 13.00 on Thursday.

This is the weakest average BNR exchange rate against the euro since August 3, 2012 (the political crisis caused by the referendum for dismissing Traian Basescu), when it was 4.6481 lei/euro.

BNR has not intervened, according to market sources, as the central bank was not interested in supporting the national currency against the trend. In fact, BNR Governor Mugur Isarescu said two months ago that „if we considered that a 1-2% change is a depreciation, I believe that would be an overstatement compared to the domestic and international tensions occurred in the first quarter.”

In February, when the rate exceeded the 4.5 lei threshold, the Governor said that „there is no room for the exchange rate appreciation. There is not much room, not to say there is no room at all.”

Romanian leu lost 1.1% against euro on the interbank market since the beginning of the year and 0.4% this month.

Prior to the crisis, banks forecasted various degrees of depreciation for the national currency: Erste Group Research saw the euro exchange rate at 4.62 lei and Banca Transilvania at 4.54 lei.

Market evolution

Romanian leu apparently started calmly the day after the ruling coalition withdrew the political support for the cabinet led by Sorin Grindeanu, and marked 4.5764 lei at 9.10 on the interbank market. It was already the highest level since 19 October 2010 (4.5829 lei) that followed a maximum level of 4.5795, unsustainable in market terms.

Political events seemed to have been already „included in the price”, and the market even tested a slight strengthening tendency for the national currency, with the euro that registered 4.5747 lei at 9.20.

At 11.30, though, the European currency was in a full appreciation rally, reaching the maximum of the last five years on the interbank market, at 4.5890 lei, the highest rate since 3 August 2012, when the average rate was 4.6263 lei.

In July 2012, the European currency sharply appreciated by almost 4% in one month, from 4.4494 lei on 29 June, amid the political uncertainties surrounding the referendum for dismissing the Romanian president, according to the Bloomberg data.

At 12.35, euro was adjusting its growth to 4.5870 lei.