Romanian leu continues nosedive

Prompted by the government’s unexpected tax on banks and other high-margin sectors, the Romanian currency continues its nosedive against the euro.

The Romanian currency hit a new record low of RON 4.7684 against the euro on Friday, when the Romanian Central Bank released its daily mid-rate. Central Bank spokesman Dan Suciu said that the slide of the leu was “partially explainable by (market) reactions to the government’s budgetary and tax policy”. This was a direct reference to the so-called “greed tax” on telecom companies, banks and energy utility firms the government announced at the end of December to plug the holes in the budget.

Telecoms and energy utility companies will be subject to an additional 3 percent tax on their revenues and energy companies will also see their prices capped at RON 68 (US$16.60) per MWh. The extra tax on banks will be a progressive tax based on the three- and six-month Romanian inter-bank offered rate (ROBOR) and with these rates currently at 3.04 and 3.34 percent respectively, their extra tax will be 0.9 percent on assets.

The additional taxes are necessary to cover the government’s already announced plans for wage and pension increases. According to estimates of the Romanian financial press, these taxes will bring in an additional RON 10 billion (US$2.45 bln) to the budget.

Since December 24th, the Romanian currency lost 2.4 percent of its value against the euro. In reaction to the fall of the national currency, the Central Bank also raised its indicative three-month lending rate (ROBOR) to 3.03 percent from a previous 2.99 percent.

Author: Dénes Albert