The newly-found trading area around 4.8650 looks a comfort zone for the Romanian leu. Sstrong primary auctions suggest that at least part of the selling interest on the EUR/RON has something to do with bond related inflows. We expect the pair to continue to trade around current levels in upcoming days.
Policymakers have also been presented with an unprecedented opportunity to shape the economic recovery in a more climate-friendly way. In this report, we look at the role of green agenda in stimulus across Central and Eastern Europe and examine some of the incredible opportunities and incentives on offer for a green policy response
After many attempts to break above 4.8750, the pair tested the lower bound on Friday, especially after the local trading session closed. It stopped just above 4.8600 and rebounded slightly towards 4.8630, where it opens today. Given the rather large move that occurred within a short timeframe, a correction higher towards 4.8700 is possible, though we don't foresee a move above it anytime soon.
Ahead of Moody's and Fitch rating review dates on 23 and 30 of October, respectively, as well as S&P on 4 December, we reiterate our long-held view that Romania will be able to avoid the loss of investment grade ratings (Baa3/BBB-/BBB-) in 2020. However, rating agencies will retain the negative outlook until 2H21 to assess the post-election fiscal policy agenda which will require steps beyond containing the pension hike.
Daily turnover remains consistently above average. The increased trading volumes around 4.8750 could be indicative of official offers protecting the leu for a while now. With that in mind, we don't expect the pair to deviate from current levels in the days to come.
There was an intense trading session yesterday with increased turnover and apparent attempts by the pair to test higher towards 4.8800. The upside pressure came in line with regional developments, with the leu's peers (particularly the zloty and the forint) under pressure as well.
Inflation advanced by 2.5% in September, below our 2.7% estimate and the 2.8% consensus. This is pushing lower our annual average forecast for 2020 to 2.7% and year-end to 2.1%. We maintain our call for for unchanged policy rates at least through mid-2021
In response to the pandemic, the region's oil & gas sovereigns have diverged in their fiscal response, with more limited stimulus packages in Azerbaijan and Russia (c.4% of GDP) while Kazakhstan rolled out a larger package (9% of GDP). As we go into 2021, support will come from higher oil prices, with our base case seeing Brent at an average US$58/bbl for the year. Nonetheless, the recovery will be tepid at best as governments will focus on maintaining macro stability and the fiscal setting beco...
Despite the increased turnover, breaking below 4.8700 is still proving difficult. The Leu's regional peers continued to perform relatively well against the single currency, hence we could see more tests rather on the downside for the EUR/RON.
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