EURO AND THE DOLLAR KNOCKED THE LEU DOWN, OR ... How to get through to politicians without saying a word

The Romanian National Bank yesterday displayed an official exchange rate of 4.2311 lei/Euro, the highest level since December16th 2009, when the exchange rate was 4.2459 lei/euro. The US dollar also gained against the leu, reaching a historical high, with the NBR"s exchange rate being 3.5496 lei, a historical high, as the exchange rate of the European currency reached 1.195 Euros/dollar, a four-year low.

The leu did gain slightly after the NBR published the official exchange rate, to 4.21 lei/euro. Adrian Vasilescu, the advisor of the governor of the Central Bank, said: "This strengthening of the leu is influenced by the international market".

He said it was possible that the political uncertainty would influence the domestic currency market. Adrian Vasilescu also considers that speculative attacks on the exchange rate are possible, but that they would not pose a threat.

The NBR official also said: "The Central Bank is watching the exchange rate, but I don"t know if it will protect the leu or not. We are going to make sure that market stability is preserved".

He added that yesterday, the exchange rate fluctuated due to the political uncertainty, which are making their presence felt in the market. Adrian Vasilescu said that investor attitude is extremely important: "For instance, during yesterday"s first half, they were keeping their Euros, but they started selling them due to some local issues".

On the interbank market, the leu gained ground against the Euro, after the opening of yesterday"s trading session, in line with the trend of the other currencies in the region, analysts say. "The Polish zloty and Hungarian forint saw higher gains yesterday, after depreciating on Monday, most likely due to sellers of Euros who bought those currencies back", they claim.

Analysts also say that the market are very sensitive to comments by political officials, and investor sentiment is negative due to the high deficits of several European states.

"In Romania, volatility is greater due to the political situation and the government"s political programs", one analyst said, who added: "Most likely the NBR is trying to send a signal to politicians. It wouldn"t intervene in the market to spend money from its reserves in order to prop up the exchange rate, because the regional sentiment is affecting the leu. It is not a steep depreciation. It"s normal for the leu to depreciate when negative events happen".

Georgiana Constantinescu, analyst with "Credit Europe Bank", said: "If the reforms for the restructuring of the public sector aren"t implemented, the only means to correct the economic imbalances will be inflation and the depreciation of the currency".

He said that before the domestic problems began, he expected the exchange rate would reach 4.09 lei against the Euro, and at the moment the bank expects the leu to reach 4.15 lei against the Euro, by year end.

Bogdan Baltazar, financial consultant, considers that it is natural for the leu to depreciate, since investor sentiment concerning the region is negative. "I wouldn"t panic, because the NBR is carefully watching the situation, and if the exchange rate were to go above 4.3 lei/Euro, it will intervene in the market to depreciate the exchange rate".

Several Romanian banks estimate that the exchange rate will reach 4 lei/Euro at the end of the year. "That level would not be very beneficial for exporters, and Romania"s exports are the main factor of economic growth", said Bogdan Baltazar, who added that the current level of the exchange rate is sustainable.