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Current currency quote "is realistic"

Whatever happens in Athens regarding the remaining within euro area, a rate of five lei for one euro, anticipated by some analysts, it is not realistic, says BNR Governor Mugur Isarescu.

Current currency quote "is realistic"
National Bank Governor, Mugur Isărescu

07 Iunie 2012, 08:24

The National Bank assured, in the respect of turmoil in the euro area, especially those of Greece, whose remaining within euro area seems still uncertain.

Whatever happens in Athens, a rate of 5 lei for one euro, anticipated by some analysts, it is not realistic, says BNR Governor Mugur Isărescu.

According to vice Governor Cristian Popa, the current quotation is realistic.

National Bank Governor explained that those who see as safe the domestic currency to a level under 5 lei for one euro, if the situation related to Greece would worsen, risk making such forecasts.

Mugur Isărescu specified that, unlike the period 2007-2008, when euro was appreciated against the dollar, and the ratio was 1.5 U.S. dollars per euro, currently, the trend is completely opposite, and this should be taken into account when making an assessment related to currency rate movements.

"I think people who talk about an almost normal rate forecast to 5 lei risk... I gave a number, I did not give it, today's press is full, 5 lei per euro, if something happens in Greece. If something happens in Greece, excuse me, it goes to 1.1, perhaps even 1.

"Do you think here, at the National Bank, the eyes are not already glued to the relationship between leu and dollar? Naturally, we glued on it. So, I would say that such a forecast suffers, to be gentle, or, if I would not be gentle, I would say that it suffers a lot, that does not introduce an essential element: a clear distinction between the 2007-2008 compared to 2011-2012 ", said Mugur Isărescu.

Exchange rate, very near the equilibrium position

Central Bank vice Governor Cristian Popa completed the explanation of Mugur Isărescu.

"If there would be an output, as a scenario, with limited probability of a disorderly exit of Greece from euro area, primarily against the dollar, the euro would be affected. So, compared to a currency that would depreciate itself, the RON would have a more limited potential for change, "said Cristian Popa.

Central Bank vice governor also said that in his opinion, at this point the exchange rate is very close to the balance position, but that the Central Bank is prepared to intervene if necessary to prevent excessive exchange rate volatility.

"We were over appreciated in 2007-2008, now we believe that we are close to what we perceive to be the balance. We qualified the depreciation that occurred in recent years as a moderate one.

"The rate is dictated by the market, we do not have a preferred level or range, it will move according to fundamentals, but also we are against the excessive exchange rate of volatility and, in a managed float regime, the bank has tools available to influence if necessary and if there is excessive volatility, so it can counter.

"Why do we care about this, including for reasons of financial stability, we still have 60 percent of the credit given to the private sector divided almost equally on companies and foreign population.

So, for the real economy and banks would be, to say so, negative an excessive rate of volatility, "Popa explains.

BNR vice governor also added that the balance position of the domestic currency can always change depending on economic developments and, especially on long term, these changes can be quite important.

Economic Growth of only 1.7 percent

The forecasts were announced Tuesday, a little more pessimistic, of the National Commission of Prognosis for this year.

Romania's economic growth would be only 1.7 percent, from 1.8-2.5 percent, the range predicted last autumn.

The RON would suppose, in the opinion of specialists, to devalue more accentuated compared to euro by the end of the year with up to 20 bani.

Translated by Alexandra-Diana Mircea
MTTLC, Bucharest University

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