Why Has the Leu Depreciated and How Can We Restore It?
Automatically translated summary. The full text is available in Romanian.
Between the start of the year and 18 February, the Moldovan leu depreciated sharply against the main reference currencies: 34% against the US dollar, 26% against the euro and 22% against the Russian rouble. Adrian Lupușor, Executive Director of Expert-Grup, analyses the causes and proposes policy measures.
The depreciation continues a trend that began in 2011. In the last quarter of 2014 remittances fell by 20% and exports of goods by 12%, while foreign direct investment dropped by 23% in the first nine months. Econometric estimates show the fall was justified by fundamentals only until November 2014; since December it has been driven by non-fundamental factors such as panic, mass purchases of foreign currency and suspicious bank transactions. Absent other shocks, the rate could stabilise in 2015-2016.
The National Bank of Moldova sold about USD 600 million and tightened monetary policy, but the measures were late, pro-cyclical and insufficient. The author calls for boosting exports and foreign investment, faster disbursement of grants and protection of vulnerable groups. He also urges a more independent, transparent National Bank with stronger bank regulation and investigation of speculative attacks.
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