Romanian leu

Romanian leu is forecast to weaken further against the euro in 2022

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Financial analysts see the Romanian leu depreciating to an average of 5.1145 units to the euro within the next 12 months, while they expect inflation to average 5.8% during the same period, a monthly poll by CFA Romania showed on Monday (Dec. 20).

Romania’s annual inflation rate edged down to 7.8% last month from an over a decade high of 7.94% in October, amid a slowdown in cost of non-food products (10.49 vs 11.39% in October). At the same time, food prices rose by 6.10%, the most since May 2013, after a 5.25% gain in October; while inflation accelerated for services (4.09% vs 3.96%). On a monthly basis, consumer prices were flat after rising 1.78% in October.

In November, the Board of the National Bank of Romania (BNR) decided to increase the monetary policy rate to 1.75%, falling short of market expectations of a 50 bps hike. The central bank said it will maintain firm control over money market liquidity as the inflation rate continues to run above forecasts, with most of Q3 inflationary pressures being exogenous, namely energy and vegetable prices. The Board now sees consumer prices on a steep upward trajectory until mid-2022, amid supply side shocks and high energy prices.

Romanian inflation
(National Institute of Statistics)

Meanwhile, BNR’s foreign exchange reserves stood at EUR 39,283 million in November, compared to EUR 39,843 million in October 2021. The gold stock remained steady at 103.6 tonnes. The country’s international reserves (foreign currencies and gold) stood at EUR 44,588 million last month, compared to EUR 44,984 million in October 2021, BNR data showed.

In a separate release, BNR said RON loans to non-government sector (71.7% of total) moved up 0.9% month-on-month in October, whilst foreign currency-denominated loans (28.3% of total) increased 0.3 when expressed in EUR. In year-on-year comparison, loans to non-government sector advanced 13.5 % on the back of the 18.0% increase in RON-denominated loans.

In other news, in the first ten months of the year, the current account posted a deficit of EUR 13,850 million compared with EUR 8,767 mill. in the same year-ago period. Non-residents direct investment totalled EUR 6,881 mill., compared with EUR 2,130 mill. YoY. LT external debt at end- October 2021 stood at EUR 96,438 mill., up 3.1 % against end-2020. ST external debt amounted to EUR 36,196 mill, up 8.8 % from end-2020, BNR data showed.

Furthermore, the domestic macroeconomic context remains difficult, according to BNR’s Financial Stability Report.

“Similar to the previous report, only one severe systemic risk was identified, with prospects for maintenance: tensions in internal macroeconomic balances, including as a result of the COVID-19 pandemic and the energy crisis. A new systemic risk is that of delays in reforms and the absorption of European funds, in particular through the National Recovery and Resilience Plan (PNRR). This is a high and rising risk. Two other high-level risks, likely to be maintained, are the risk of global uncertainty in the context of the energy crisis and the COVID-19 pandemic and the credit risk of the non-governmental sector,” the report said.