RON Hits 6-Month High Is The Leu Under Attack?

• Economist Calin Rechea: "The exchange rate will be maintained at a reasonable level, at least until the presidential elections."

A precarious economy, political uncertainties and a high budget deficit are weakening the investors" perception of Romania and indirectly contribute to the depreciation of the national currency. "Additional pressure is put on Eastern European currencies and such pressures are stronger in Romania, considering that the financial market is weaker," said Laurian Lungu, the Managing Partner of Macroanalitica.

In his opinion, the significant depreciation of the leu against the euro in the recent past is caused by "the September effect." He explained that September was the month when traders returned from vacation and start reacting to events that had happened over the summer. Additional caution on their part also has effects on the financial market.

Adrian Vasilescu, advisor to the Governor of the National Bank, believes that the depreciation of the RON is caused by fluctuations in supply and demand, which is not necessarily a sign of speculative attacks.

Economist Calin Rechea believes that, if this is indeed a speculative attack, the recent decline is just a test to see the strength of the reaction. In such scenario, the National Bank"s desire to maintain the national currency within a small range of fluctuation will soon be met with stronger attacks. In his opinion, the exchange rate will be maintained at a reasonable level, at least until the presidential elections, as a result of the political pressures to be put on the National Bank.

"Nevertheless, the Government needs to cut spending in order to slow down the growth of the budget deficit, which is a source of pressure on the exchange rate, especially considering the significant decline in revenues and in the volume of foreign exchange sent home by Romanians working abroad, which constitute an important support for the exchange rate," Rechea added.

In turn, dealers working for private banks believe that the current level of liquidity on the market in Romania is lower than on other markets in the region. Moreover, corporate foreign exchange dealers are more or less idle for the time being.

Another category of dealers believe that, although its current level is satisfactory, liquidity is not evenly distributed, and that is causing the current exchange rate fluctuations.