Leu falls to eight month low

The Romanian currency yesterday dropped by almost one "ban" (0.23%), to 4.2995 lei/Euro, the highest exchange rate announced by the Central Bank since February 17th 2009 (4.3096 lei/Euro).

The depreciation of the leu is extremely low compared to that of other currencies in the region, which lost as much as 1.5% these last few days. According to Dragoş Cabat, chairman of CFA Romania, this shows good performance from the leu.

"The Central Bank will try to keep the leu below the 4.3 lei/Euro level", said Mr. Cabat, who added that the only thing that could pressure the exchange rate is a possible failure of the appraisal of the International Monetary Fund (FMI).

Lucian Anghel, chief-economist at BCR also anticipates that the 4.3 lei/Euro will hold until the end of the year: "The policy of the Central bank is the right one, a strong depreciation of the leu does not favor lending".

Vlad Muscalu, economist at ING, considers that the better evolution of the leu compared to that of other currencies is most likely due to the intervention of the central bank. In his opinion, compared to last year and the beginning of 2009, when the Central Bank was aggressively controlling the exchange rate, from now on the NBR will be more flexible in this regard, by allowing a slight depreciation, especially since there is a big need to fund the budget deficit.

"Even as early as the beginning of the month, a higher vulnerability became visible, due to the uncertainty caused by the current political crisis, which also impacted the exchange rate", said Rozalia Pal, senior economist with Unicredit Ţiriac Bank. In her opinion, the NBR intervened both directly (by selling and buying Euros) as well as indirectly, by regulating market liquidity by raising the interest rates.

Mrs. Pal also said that there are positive factors that could lead to an appreciation of Romania"s currency, such as increased risk appetite among investors.