Analysts rule out a speculative attack on the leu

• The volatility of the leu is almost half that of the other currencies in the region

Even though the strong appreciation of the leu took the market by surprise, analysts say that, unlike the other currencies in the region, the overall volatility of the leu is very low, as most of them rule out a speculative attack.

"There are several explanations behind the strengthening of the leu, but under no circumstances would the spectacular improvement of the economic fundamentals be one of them. What"s more, the moves we are seeing these days are rather small when looking at other currencies in the region, it"s just that they get a lot of attention (similar to what was happening when the leu was depreciating)", said Alexandru Chidesciuc, chief-economist of ING Bank.

However, the growth potential of Romania"s economy, which far exceeds that of the other emerging economies in the region, the reduction of the current account deficit as well as the resumption of the financing agreement with the international financial institutions are several strong factors which favor the appreciation of the leu, says Florian Libocor, the chairman of the AAFBR (Romanian Association of Financial and Banking Analysts).

"What"s more, the improved perception of foreign investors is another factor that brings a more positive outlook", Mr. Libocor says.

Even ING Bank, who had one of the most pessimistic forecasts concerning the leu, thinks that in the short term the appreciation of the leu could continue. "Whereas at the end of 2009 we were still discussing the depreciation of the leu against the Euro on the back of the domestic political instability, in the beginning of the year we have revised our forecasts to include a strengthening of the leu to 4 lei/Euro or even below that level, but only temporary", said Mr. Chidesciuc.

ING forecasts show a depreciation of the leu up to 4.25 lei/Euro in Q2 2010, followed by a strengthening of the leu to 4.1 lei/Euro, towards the end of the year.

On the interbank market, the Euro dropped to 4.07 lei on Monday, after rising slightly to 4.0950, in yesterday"s session. At the time, the NBR calculated an official exchange rate of 4.0877 lei/Euro, up 0.18% over the previous day. To put things in perspective, in Poland, the exchange rate climbed to 4 zlotys/Euro, whereas the Hungarian forint fluctuated around 269.50 units/Euro, with a slight tendency to depreciate. The currencies of the emerging markets in the region are correlated with the USD, which over the course of the last seven days, gained over 1.4% over the Euro, which was plagued by the troubles of Greece.