The Romanian leu fell deeper to a new historic low on Friday (Aug. 20) against the European currency, as the average reference rate calculated by the National Bank of Romania (BNR) stood at 4.9338 lei/euro, up by 0.60 bani (0.12%) against the previous rate, of 4.9278 lei. One leu is subdivided into 100 bani.
The Romanian leu had dropped to an all-time low against the euro on July 14, when the euro was 4.9283 lei. The depreciation of the leu against euro is caused by the volatility on the world markets
amid plans of the U.S. Federal Reserve (Fed) to dial back its COVID-19-related economic support measures.
The minutes from the Fed’s July meeting published on Wednesday (18) showed officials expected they could ease stimulus this year. Massive stimulus from major central banks have helped inflows into riskier assets throughout the Covid-19 crisis. Tapering, or easing down of bond-buying programmes could have a negative impact on emerging market (EM) assets.
Emerging market equities sank 2% to their lowest this year and currencies slid to a four-month trough on Thursday (Aug. 19), a day after the release of the U.S. central bank’s minutes.
“The outsized role of the U.S. dollar in EM lending and global credit markets means that higher U.S. yields will feed through to a higher cost of EM borrowing in foreign and local currency,” research from Fitch says.
Conditions at emerging market economies, especially the smallest EMs, could trigger a spike in borrowing costs.
Romania was promoted to Emerging market by FTSE Russell in September 2020, when the first two Romanian companies were included in the FTSE Global Equity Index Series (GEIS).
For the Romanians, a depreciated leu translates into higher prices, higher installments and higher bills. Meanwhile, Romanians contracted new mortgage loans in lei worth over RON1.8 billion in June 2021, double compared with the same period a year ago, which translates into a monthly record high of new mortgage lending in lei over the last 14 years, according to Ziarul Financiar.
The World Bank classified Romania as a high-income country for the first time, based on 2019 data (per capita income of $12,630).