RON Plunges To 7 Month Low: Analysts: It Cannot Be A Speculative Attack

Despite political tension having weakened the RON to the lowest value in the last seven months, analysts believe that the higher pressure noted on the foreign exchange market in the last two days, since the Government was dismissed by a no-confidence vote, is quite normal.

"This is not a speculative attack. An attack on the leu requires more than a series of speculative transactions," said Vlad Muscalu, an Economist with ING Bank, who added that, given the ongoing political crisis, a higher pressure on the market was normal.

From an international perspective, the Romanian currency is likely to appreciate, as foreign banks intend to buy lei, he said. ING Bank remains the only bank in Romania to project an appreciation of the leu, but a moderate one though.

The RON plunged to a seven-month low yesterday, closing at 4.2940 RON/EUR after several attempts to break the 4.3 RON/EUR threshold.

UniCredit Tiriac Bank recently revised its forecast for the RON-EUR exchange rate, pointing to 4.3 RON/EUR at the end of the year, from the previous 4.5 RON/EUR, amid better figures for industrial output and exports. The bank further indicated that optimism could also spread to other emerging economies in the region. Another reason for UniCredit"s positive revision is that the National Bank of Romania is expected to actively step in to prevent an acute depreciation of the national currency.

• Citi economists say Central Bank intervention probable

Citi analysts believe that the National Bank of Romania has sufficient resources to stabilize the exchange rate in the next three months (approximately 3 billion EUR if the net foreign asset target imposed by the IMF is observed), even without any funds from the IMF, which may or may not be disbursed after the second progress review.

Nevertheless, "the National Bank"s will and capability to defend the leu should not be underestimated, considering the fairly acceptable level of its reserves," Citi analysts wrote in their report.

The leu had a tendency to depreciate from 4.28 - 4.29 RON/EUR to 4.3 RON/EUR after the fall of the Government, but the 4.3 RON/EUR milestone was never reached, possibly due to an intervention of the National Bank, as some analysts believe.

• Moody"s: The Government"s fall will not have a major impact on the economy

Moody"s does not expect the recent fall of the Romanian Government to have a major impact on the economy on short term, as political tensions do not yet propagate into the economy.

"The economy appears relatively detached from the political noise and the International Monetary Fund and the European Union could remain tolerant of the country"s slow rate of progress on key reforms until after the elections," a recent Moody"s report indicates.

However, the early months of 2010 could bring combined IMF - EU pressure on the Romanian Government to reiterate its commitment to the reform programme defined in the financing agreements.