Romania, Hungary, Czech Republic, Poland

• Eastern European Central Banks Forge Alliance

• Governors are ready to step in to support local currencies

Representatives of the central banks of Romania, Hungary, the Czech Republic and Poland organized simultaneous press conferences yesterday on the topic of foreign exchange markets in Central and Eastern Europe reacting upon the depreciation of emergent currencies. The central bank governors unanimously stated that the depreciation of Eastern European currencies was exaggerated and economically groundless and that the respective central banks were prepared to support the exchange rate.

National Bank of Romania (BNR) Governor Mugur Isarescu yesterday announced that BNR was prepared to counteract any attempts to destabilize the exchange rate. He also said it was necessary to perform "a certain" adjustment of the leu and other emergent currencies in the region. "A certain adjustment of the currencies in the region is indeed necessary, but the excessive depreciation of local currencies can lead to destabilization in the economy and must be avoided," Isarescu said.

In his opinion strong exchange rate fluctuations can cause problems in the real economy. The exchange rate for RON "cannot be judged only by what you hear from the traders, because traders want to make money out of anything and have their own judgement and find volatility quite convenient." The local traders claim that there is no sign of a speculative attack on the leu for the time being, especially due to the fact that the interest rates in Romania are still high. According to them, the foreign players have been focusing on the zloty and the forint.

The National Bank of Romania has not intervened on the foreign exchange market directly since the second half of 2006, but reserves the right to unannounced intervention to avoid a destabilization of the exchange rate. "There was a period in the second half of 2006 when we made no intervention on the foreign exchange market, but then, too, we stressed that the leu was in a managed float process.," Isarescu said.

Governor Slawomir Skrzypek of the Central Bank of Poland referred to the same topics in a parallel press conference yesterday: "The macroeconomic situation of Poland does not justify such a scale of zloty weakening. The central bank can undertake action in order to avoid the negative impact of zloty volatility on the economy." In his opinion, "The intensification of exchanging information and coordination between Central and Eastern European central banks may support their effectiveness."

In turn, Governor Zdenek Tuma of the Central Bank of the Czech Republic explained: "We share the opinion that the currency swing in a number of countries does not correspond to the real economic situation and the central banks in the region have agreed to make simultaneous statements on this matter." In his opinion, the crown"s decrease to a low of 29.69 CZK/EUR last week - well below the average of 25.8 CZK/EUR forecast for 2009 was only to a small extent explained by the decrease in exports.

Representatives of the Hungarian Central Bank explained that, while some adjustment of the exchange rate was adequate for emergent economies, "excessive depreciation of the national currency without economic justification can be destructive and must be avoided." The Hungarian Central Bank stressed they were ready to act to prevent further depreciation of the forint. Yesterday, however, they decided to maintain the key rate at 9.5%. Central and Eastern European currencies have been depreciating lately amid worries about the performance of the respective economies. Since the beginning of the year, the EUR has gained 7.48% on the RON, 6.29% on the CZK, 12.3% on the PLN and 11.65% on the HUF.