Where is the leu heading this year?

The devaluation risk of the leu is extremely high and will persist through the remainder of the year, should the political crisis doesn’t end until presidential elections. Economic indicators don’t show any sign of improvement, and the disbursement of the third tranche under the stand-by agreement with International Monetary Fund is at risk.

ING Bank expects the EUR/RON to touch 4.5 by the end of the year, while Banca Comerciala Romana and UniCredit Tiriac Bank bet on an exchange rate of 4.3 lei/euro by the end of December. Raiffeisen Bank’s forecasts announced six months ago remained unchanged.

ING’s forecast is the most pessimistic, as it factors in the devaluation risk posed by possible disagreement between Romanian authorities and IMF on the SBA conditionality.

Citi predicts an exchange rate of 4.32 for the end of 2009, forecasts that have been recently revised upward from 4.1lei/euro. Citi said it also expected an active intervention of the central bank in the forex market in an effort to shield the domestic currency against the negative effects of the political crisis.

The official exchange rate posted yesterday by the National Bank of Romania broke through the 4.3lei/euro psychological barrier, climbing 0.2% from the previous session. The leu is thus at its weakest point in eight weeks and a half.

Economists expect no positive factors that could drive the leu back up versus its European peer for the end of 2009 and early 2009, as there is no economic background that could strengthen it.

The leu is at its lowest level since February 17, when the central bank posted an exchange rate of 4.3096lei/euro.