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The Moldovan currency market is strongly synchronized with the electoral cycles. What effect will the 2018 elections have on the NBM exchange rate and reserves?

2018.07.13 Economie Victor Ursu Print version

If we analyze the evolution of the forex market in the last 15 years, we observe an almost perfect synchronization of the market with electric cycles. Namely, before the 2-3 years elections there is accumulation of foreign exchange surpluses on the market, which leads to the appreciation of the currency, then in the electoral year, 2009, 2010,2014 there is a sudden shortage of currency conditioned by the massive withdrawal of the currency, then Again the accumulation cycle begins, and so over the last 15 years. This is the opinion expressed by the economist IDIS Viitorul, Veaceslav Ionita in the show "15 minutes of economic realism".

It is currently shaping the same trend when foreign exchange reserves accumulate for 2-3 years until the election, and in the election year, they are reduced by about $ 700 million each time. Two years before the election, we watched the accumulation process, and now we have all the prerequisites to say that we will see discounts, but they will be smaller. A clearer picture will be outlined in September.

In 2009 before the elections due to the pressure to maintain the exchange rate, the NBM intervened on the market with about 700 million USD. Then, by 2013, there are accumulations of currency, and in 2014 losses of 700 million USD (robbery in the banking system). In 2016 and 2017, we again have currency growth, and 2018 the electoral year.

"In this sale of foreign currency from the citizens will be 2.1 billion USD. At the same time, there is a faster growth of the demand for foreign currency against the background of the increase in imports by 23%, compared to the increase in exports by only 17%. And by the end of the year, we will see a higher demand for currency than the offer, but it will not affect the exchange rate. At the same time, the currency market in the Republic of Moldova is synchronized with elections. Even if the need for currency increases, the exchange rate will be a stable one, "Ionita explained.

People receive money from abroad more than salaries in Moldova. In the current year, Moldovans will receive about $ 2.1 billion from abroad. And the exchange rate influences Moldovans' income from remittances. Also, the exchange rate influences the inflation rate, which in May constituted 2.8% in annual value, and the main factor is the appreciation of the national currency. Because of the fact that the Moldovan leu appreciated by 20% against the US dollar, imported goods should have fallen more. Another factor influencing the foreign exchange market is exports. "In two years, we have seen strong growth in deliveries of goods and products abroad, and the appreciation of the national currency has severely hit exporters. However, part of the losses is amortized by the fact that a significant share of the goods is exported to the EU. Last year, if we took into account the exchange rate against the US dollars of exporters, the losses amounted to four billion lei, and in 2018 the amount will exceed that of last year, "Ionita said.

The Moldovan Leu has appreciated by 20% against the US dollar in the last two years, but against the euro by only 6.5%. This is explained by the fact that the Moldovan Leu was closer to the euro because Moldova's economy is connected to the EU, about 65% of exports are directed to the European community. The Republic of Moldova has the economy connected to the euro and the remittances in the same way but the exchange rate remains connected to the dollar. Maybe it is the case that the NBM revises the reference rate and report it to the euro then it would not be so fluctuating.

The fundamental factor that led to the appreciation of the leu is the foreign currency inflows in the country after 2013 (exports and net sales of foreign currency to citizens). In 2013 the net foreign currency inflows of the citizens cumulated with the proceeds from exports amounted to 5.4 billion lei. In 2015, after bank fraud, sales amounted to 3.5 billion lei with 2 billion dollars less. And this has happened against the backdrop of the reduction in exports to Russia and the reduction in citizens' remittances from $ 2.93 billion to $ 1.56 billion.

In 2018, the exporter's currency will be $ 2.9 billion, and the volume sold by citizens will be $ 2.1 billion. Cumulatively in 2017 and 2018 citizens sold about $ 700 million more than demand from the economy. But the surplus of currency has created pressure on the currency market and appreciated the national currency. The NBM had to intervene to buy the surplus. The appreciation of the leu led to a loss of RON 4 billion in the NBM's foreign exchange reserves. A loss is one of accounting, with no real effects. In other words, at the USD 20 dollar exchange rate, the central bank at every billion dollars in lei had reserves of 20 billion lei, and now at 16.5, the equivalent is 16.5 billion lei. In fact, every billion of the foreign exchange reserves so remained one billion.

In conclusion, Ioniţă said that the 700 million USD of the population is found in deposits and in the money mass sterilized by NBM. The interest paid by NBM is one billion lei, annually, so that this money will not disturb the economy. The economy of the country is so weak that it can assimilate neither the leg nor the foreign currency.

For the coming months, we anticipate a faster growth of the demand for foreign currency against the offer, which will fall from the appreciation of the leu, and in the autumn it is possible for NBM to intervene in the foreign exchange market as a currency sale to cover demand for increasing currency. But all these moves will not be strong enough to cause a sudden change in the exchange rate.

We will witness a stable exchange rate with a possible slight depreciation of the leu.

The show is made by IDIS "Viitorul" in partnership with Radio Free Europe.

For further details, please contact the press officer, Victor URSU, at the following address: or 069017396.

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