Raiffeisen: "Romania will not need significant foreign funding this year"

Due to the low levels of its current account deficit and long term foreign debt, Romania will have little need of foreign funding this year, according to analysts by "Raiffeisen" Bank.

According to analyst estimates, last year the current account deficit only amounted to 4.3% of the GDP, down from 11.6% of the GDP in 2008. At the same time, the foreign investment inflows amounted to EUR 4.9 billion, covering 97% of the current account deficit in 2009.

The current account deficit only amounted to EUR 5.1 billion Euros last year, down YOY from EUR 16.2 billion in 2008.

"Consumption and investments are currently low in Romania and will continue to be so for a while, which will keep imports low. We therefore predict that the current account deficit will hover around 4.3% of the GDP in 2010", the report by Raiffeisen Bank states. The short term foreign debt dropped significantly in 2009, to 14.4 billion Euros in 2009, from 20.5 billion Euros in 2008. Analysts expect the total the foreign debt service to amount to around 24% of the GDP, down from 37.4% of the GDP in 2009.

"We believe the low need for foreign funding will reduce the pressure on the leu and as a result, will allow the central bank to further cut the policy rate", Raiffeisen Bank analysts say.

The interbank rates dropped over the course of the last week, as liquidity in the market improved, according to the cited analysts. The yields for government bonds decreased on the main and secondary market.

"We stand by our prediction that the yield on government bonds will continue to drop by the end of the year, as we expect the central bank to continue to cut the policy rate", analysts say.