October 2, 2022

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The appreciation of the dollar will lead to an increase in fuel prices in Romania

The appreciation of the dollar could lead to an increase in fuel bills, but also higher public debt repayment costs and an increase in the public debt compared to the Gross Domestic Product, according to the economists consulted by Agerpres.

“The appreciation of the dollar in relation to the Romanian leu (converging towards the record level recorded on July 12) was mainly determined by the dynamics of the EUR/USD rate – practically USD/RON is a cross between EUR/RON and EUR/USD.

Over the last few months and days, the US dollar has appreciated compared to the single European currency (to its highest level since 2002), an evolution determined by a number of factors, among which are mentioned: the very short-term outlook for US monetary policy and the euro zone; the accumulation of recession signals in both economic blocs; the high degree of uncertainty regarding the dynamics of the world economy and the future of the international monetary-financial architecture, especially in the context of geo-political tensions and their consequences – including the separation between the Euro-Atlantic world (of which Romania is also a part) and the bloc represented by Russia , China, Iran and other emerging economies”, says Andrei Rădulescu, Director of Macroeconomic Analysis at Banca Transilvania.

Among the consequences of the depreciation of the Romanian leu relative to the US dollar, he mentioned the prospects for adjusting the deficit in the trade balance with goods with countries outside the European Union.

Oil imports are in dollars, the appreciation of the American currency automatically means the price of fuels

“In this context, we draw attention to the intensification of the trade deficit in goods with countries outside the EU, by 75.9% year/year to 0.9 billion euros in June, respectively by 74.1% year/year to 5, 35 billion euros in the first semester of 2022. On the other hand, oil imports are denominated in dollars, and the appreciation of the dollar could lead to an increase in fuel bills in the next period”, Andrei Rădulescu declared.

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Also, Ciprian Dascălu, the chief economist of BCR, explained the main causes of the strengthening of the dollar against the euro: the expectations of a significant widening of the positive interest rate differential in favor of the dollar against the euro, expectations that are expected to be strengthened by the speech of on Friday at the Jackson Hole symposium of Fed Chairman Jerome Powell; the better economic growth prospects in the US compared to the Eurozone, as well as the different current economic situation between the two economies, reflected by recently published macroeconomic data; the higher exposure of the Eurozone to the disruptions caused by the war in Ukraine, especially through the trade channel, given the dependence on imports of raw materials.

Effects of the appreciation of the dollar: more expensive imports, the deepening of the trade deficit

“Possible effects of a stronger dollar, caeteris paribus, on the Romanian economy: higher costs for imports of raw materials quoted on international markets in dollars, so a higher imported inflation; the deepening of the trade deficit and the current account deficit, which could put additional depreciation pressures on the national currency, in general, a stronger dollar puts devaluation pressures on the currencies of emerging countries; higher public debt repayment costs and the increase in public debt (which also includes loans in dollars) compared to the Gross Domestic Product (expressed in lei)”, said Ciprian Dascălu.

The American dollar is more expensive in relation to the leu compared to the European currency, given that the exchange rate displayed on Tuesday by the central bank indicated 4.9225 lei for one dollar, compared to 4.8851 lei for one euro.

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