Analysts expect the leu to strengthen below RON 4/Euro1

National Bank of Romania (BNR) Governor, Mugur Isarescu, said that the peak of pressures on the national currency is over, after the first tranche of a stand-by loan agreed upon with the International Monetary Fund (IMF), worth €5 billion, has already been sent to Romania, and the central bank lowered the key rate by 0.5 percentage points, to 9.5 percent.

Financial market analysts interpreted the message even further, saying that the exchange rate could fall below RON 4/€1, after several months of depreciation. However, local market company managers and owners, who have been severely affected by the economic crisis and the weakness of the leu, disagree.

"It is not impossible for [the exchange rate] to fall below RON 4/€1. There could be a short-term appreciation, but, we maintain the RON 4.7/€1 forecast for the end of the year," according to ING Bank Romania's Senior Economist, Vlad Muscalu.

On the other hand, the President of Flamingo International retailer, Dragos Simion, said: "I do not believe the leu will fall in the coming period. If it does, it will be accidental and not necessarily impacted by the BNR decision."

During a press conference yesterday, Isarescu said that the lower risk for leu depreciation is based on the swift adjustment of external imbalances, even faster than the central bank had expected, although a longer term sustainable level has not been reached as yet. "Optimism is resurging. In the short-run, it is not ruled out that we witness a strengthening of the national currency, but this is not sustainable in the long-run. We will definitely see a cut in interest rates for deposits and loans," according to UniCredit Tiriac Bank Senior Economist, Rozalia Pal.

Business Standard