Over the past few weeks, central banks from Romania, Poland, the Czech Republic, Hungary, which implement flexible exchange rate regimes have held consultations regarding the developments in their national currencies. During these talks, common views have been expressed and have been publicly disclosed today by top officials of these institutions.
The NBR view is the following:
Since the beginning of this year, the currencies of CEE countries, including the Czech koruna, the Hungarian forint, the Polish zloty and the Romanian leu depreciated substantially vis-a-vis the euro.
Among the various potential causes of this regional depreciation, commentators listed high current account deficits, export-dependent economies facing a sharply falling demand from Europe and a strong dependence of local banks on their Western European parents. In normal times there is nothing wrong with a catching-up economy running a current account deficit financed mainly through autonomous capital inflows. Export-oriented economic structures and close financial integration with an advanced region like Western Europe should be viewed as structural longer-term advantages and not as potential dangers.
However, these are far from normal times. As global deleveraging continues, financing external deficits has become more difficult for Central and East European catching-up economies, primarily due to private sector financing gaps.
This makes some adjustment, including that of the exchange rate, necessary. Nevertheless, the adjustment should be a reasonable one the more so as supportive actions have already been initiated. Thus, in Western Europe, our major export market, monetary and fiscal stimulus has been deployed, and its effects should follow, although with some lag. Ultimately, this will help support export demand for the Central Eastern European countries. As to the dependence on foreign parent banks, quick action by European policymakers has helped to stabilise the financial system in Western Europe. With their liquidity and capital situation significantly improved, Western European parent banks remain committed to their subsidiaries in the region. We count on financing flows already extended by parent banks to their local CEE operations to be renewed to a great extent.
Therefore some exchange rate adjustment is indeed appropriate in these economies, excessive depreciation which is not justified by economic fundamentals can be disruptive and should be avoided. The Romanian central bank is ready to take action if necessary to prevent disruptive movements in the leu's exchange rate.