The leu at its lowest against the Euro, worries at their highest

• IMF: The austerity measures implemented in Romania have delayed the recovery of the economy

In a report, the International Monetary Fund (IMF) claims that the austerity measures in Romania are the ones which postponed the return of the economy. The IMF admits that the austerity measures of 2010 could have been implemented gradually. The experts of the Fund claim that the absorption of European funds, the reduction of tax evasion and public spending would have helped the economy more.

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• Călin Rechea: "The NBR can only slow down the depreciation"

The macroeconomic fundamentals of Romania are contributing to the depreciation of the leu against the Euro, economic analyst Călin Rechea said. He said that we have a very imbalanced real economy, which was concealed by last year's exuberance, when exports increased. The net exports, which represent the difference between the value of exports and imports, have continued to be negative, due to the low added value which we export, the analyst warned. Investments in retail chains and real estate projects do not contribute to the increase of economic competitiveness, because there is a need for investing in manufacturing, and our political, legislative and fiscal environment does nothing to favor this kind of investments, Călin Rechea explained.

He emphasized the fact that saving, which should lead to the formation of capital can not be replaced by the taking out of loans, because they increase the level of indebtedness and emphasize the imbalances.

The European context is unfavorable, as the tensions are worsening again, and the European authorities seem to be moving from a plan to bail out Greece, to a "controlled exit" from the Eurozone, Călin Rechea said. As the uncertainties are high, the movements on the financial markets are chaotic, and investors are looking for safe haven currencies. The Euro is in turn weakening compared to the other currencies of the world, which makes our country's situation even worse, the economic analyst explains.

The NBR has very limited means of action available, which could alleviate the depreciation, but not change the trend of the evolution of the leu, he considers. Large scale interventions to do so would be ill-advised, because the markets might realize the intention of the Central Bank and seriously test its reserves, according to Călin Rechea. "The NBR can only slow down the depreciation, but its intervention is a matter of price, volume, and timing", the economic analyst said. As long as the Government continues to support raising the wages of the public sector, in the absence of higher public revenues, the fears that the discrepancies will exceed the accepted levels will increase, affecting the way the country is perceived abroad, Călin Rechea says.

• Claudiu Cazacu, XTB: The euro/ron exchange rate could reach 4,46

In April, the leu was the weakest currency against the Euro, according to an analysis by X-Trade Brokers. The leu did very badly, losing 1.15% against the Euro and 1.86% against the American dollar, as a result of political uncertainty. In May, the leu gained until 7th, only to then lose all the gains until May 11th.

Claudiu Cazacu, chief-analyst of the Romanian branch of X-Trade Brokers, said: "The end of April led the quotations of the leu to new lows against the Euro and took the exchange rate out of a long period of lethargy. Almost all of the depreciation took place after the fall of the government; I doubt that without that incident, the leu would have still been < the biggest loser > against the Euro. The Hungarian Forint was bought by speculators who were betting that the Hungarian government would go back to negotiating with the IMF. The zloty and the Czech Koruna had modest, but similar performances, unlike the historical norm of much greater variations of the zloty, compared to the Czech Koruna which is generally more stable".

In the beginning of May, the uncertainties which arose due to the concerns over Greece's exit from the Eurozone have thrown the currency markets in turmoil, the study says.

Claudiu Cazacu said: "(...) It is not just the Euro, but also the currencies in the ECE region (Eastern and Central Europe) get hurt when investors are looking for safe havens. In Romania the leu seems to have found a new short-term fluctuation range between 4.4 and 4.46, but within it the fluctuations will probably be a bit wider. Over the medium term, the uncertain context and the risk of overshooting the recently set deficit target of 2.2% could even push the Euro/Ron exchange rate higher than the peak of May 1st, it reached on the offshore markets, of 4.46".

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• Fitch: Eastern European banks, affected by the crisis in the Eurozone

The quick growth of lending in China since 2008, is beginning to show signs of exhaustion, but the rise in lending on the emerging markets of Asia, Latin America, Europe and countries which belong to the Gulf Cooperation Council (GCC) is less risky, as in general, the banking system is solid, an analysis published yesterday by financial ratings firm "Fitch Ratings" shows.

The agency warns against the significant risks which banks in Central and Eastern Europe are facing because of the crisis in the Eurozone and to the quality of assets which remain vulnerable in some of the markets of the ECE and the former Soviet Union.

The banks of Central and Eastern Europe are affected by the crisis in the Eurozone due to the region's dependence on exports, of the bank's shareholder structure and of the potential depreciation of the situation in the case of countries which use the Euro. There are risks concerning the quality of assets and solvency in Slovenia due to the high degree of leverage of the private sector, and the rate of non-performing loans in other countries in the Southern region (Hungary, Romania, Bulgaria and Croatia) exceeds 10% and will rise further, according to the analysis by "Fitch Ratings".

In Russia and in most of the former Soviet countries, the agency expects the banks' lending profiles to remain stable this year because the high price of commodities support the growth of the economy and implicitly the quality of the banks' assets and their performance.

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The Romanian National Bank (NBR) yesterday announced an official exchange rate of 4.4373 lei/euro, up 1.08 over Friday. Also, the American dollar rose against the leu by 2.70 bani, to 3.4479 lei/dollar, the highest level since July 1st, 2010, when it was quoted at 3.5420 lei/dollar. The Swiss Franc yesterday gained 0.9 bani against the leu, reaching 3.6951 lei/franc. Yesterday's official exchange rate reached a new high, since September 5th, 2011, when the European currency was quoted at 3.8133 lei.

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WALL STREET JOURNAL:

• Victor Ponta promises stability and responsibility

In an article for the Wall Street Journal (WSJ), the new PM Victor Ponta promised to keep expenditures tightly in check, in an attempt to reinvigorate the economic growth, thus pleasing both investors who worry over the deficit, and the wishes of its electorate which is tired of austerity. "I wish to send the markets a signal of stability and responsibility", said Victor Ponta.

In his statements to the WSJ, Victor Ponta said he would honor the strict conditions of the stand-by agreements with the European Union and the International Monetary Fund. In his opinion however, fiscal cautiousness must be accompanied by a "sensible policy to promote growth" as well as a "safety net for the most vulnerable," adding that one of his missions is to "undo" what he sees as the mistakes of his predecessors.

The WSJ also says that Mr. Ponta's room to maneuver is constrained by EU rules, the IMF deal and jittery markets, which pushed Romania's currency, the leu, to record lows against the euro in late April amid fears Mr. Ponta's commitment to austerity could waver. Mr. Ponta said "uncertainty is normal in the first few days of a new government," but predicted "the currency will recover."

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THE FASTEST PACE OF THE LAST NINE MONTHS

• The BSE fell 4.1%

Yesterday, the Bucharest Stock Exchange (BVB) followed its foreign peers and fell 4.11%, at the quickest pace in the last nine months, as the sell orders caused the prices to drop. Shares such as the SIFs, the Proprietatea Fund, OMV Petrom, Transelectrica and Transgaz fell by as much as 6.7%.

A higher correction than yesterday was seen on August 8th, when the general index BET-C fell 7.41%. At the time, the decision of the ratings firm Standard & Poor's to cut the rating of the USA led to severe corrections on all the markets.