Leu depreciation to lead to economic downfall

The leu continues to lose massive ground against the euro, due to speculation on the market, which has led to an increase in demand for foreign currency.

In these conditions, the National Bank of Romania (BNR) posted an exchange rate of RON 4.2684/€1 on Monday, 12 January, some 6 percent above the value of the national currency at the beginning of 2009. Moreover, the leu continued to depreciate on the foreign currency market, down to RON 4.32/€1, even after the central bank posted the benchmark exchange rate.

The foreign currency market is overcome by panic, which is also affecting individuals who have started to trade their lei for euro as a protection against the devaluation of the national currency. This situation is leading to further depreciation of the leu.

"Everybody is now buying euro. There is also a psychological effect which started when the exchange rate exceeded RON 4.3/€1. Some players may now be expecting the leu to depreciate to over RON 4.5/€1. Only BNR can intervene to strengthen the leu, but it has not yet done so," said Ciprian Mihai, Head of Volksbank Romania's Treasury Department. While Nicolaie-Alexandru Chidesciuc, Senior Economist of ING Bank Romania forecasts that the leu will maintain its downward trend and that we could witness a RON 4.7/€1 in September, Dragos Cabat, Managing Partner of the Financial View advisory company, said that the maximum value will be RON 4.3/€1.

Business Standard