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Tuesday, February 15, 2005
Business in Romania blog
In the last days everybody in Romania could notice the chaos on the exchange market. Yesterday, the EUR lost another 500 lei and was placed at an exchange rate of 35.515 lei, according to National Bank of Romania (NBR). The dealers could notice how EUR was losing about 200 lei from one hour to the other. The European currency was traded at rates as low as 35.030 lei on the market.

In such conditions, the chances of making a profit out of exchange trading are almost zero.

Last week, EUR lost about 2.000 lei. In the previous months, the dealers could blame this trend on the large selling of EUR on the market, but now the effect of the trading seems to be extreme.

Some dealers say that the EUR dropping is also caused by everybody expecting NBR to enter the market and buy the extra EUR, but this is not happening for the moment. NBR is not present on the exchange market, so the rates are getting lower each day.

Some analysts expect that EUR will drop to about 34.000 or even 33.000 lei in the following days if NBR stays out of the market. The previous days showed that nothing can stop the LEU in getting more powerful each day.

Still, on the street the good effects of this trend cannot be seen. The prices stay the same, even on products that are priced based on EUR. Everybody wants to get a share of the pie, so they will not make price adjustments until the trend is stable.

The bad side of the story is felt by the exporters. Mihai Ionescu, CEO of the National Association of Exporters and Importers stated that about 90% of the exporters are one step away from bankruptcy because of the chaos on the exchange market. The only way they could protect themselves is by forward contracts. For example, if someone made a forward contract a couple of months ago, they would have a 38.000 lei / EUR quotation which would bring them a lot of money these days.

Also, a lot of Romanian companies are paying employee salaries based on EUR or USD. So, in this case, either the company agrees to fix the EUR / LEU rate and pay the salaries at, let's say, 38.000 lei / 1 EUR - case in which they lose a lot of money -, either the employees get the pressure, as they will have much lower earnings at the end of the month.

Either way, the chaos is not good for anyone. Dragos has a nice point of view on what can be done in order to prevent losing good incomes these days.

UPDATE: I recently found out, thanks to IULIA, that NBR today bought 100 milion EUR on the exchange market. This raised the exchange rate with about 1.000 lei. This way, the exchange rate for today was 36.738 lei / EUR.

Posted by Mihai Botea : 2/15/2005 07:49:00 pm Chaos on the exchange market
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