Bankers have different insights regarding this year’s evolution of the currency exchange rate: some see a permanent downslide throughout the following months, forecasting a 4.2lei/euro rate in March and 3.8 lei/euro at yearend, while others expect a freefall of the local currency down to record 4.5 units/euro rate at the end of March and 4.70 lei/euro in third quarter this year.
Scenario I: 4.2 lei/euro in March

Local currency may stop from falling in the coming months, down to 4.2 lei against euro in March and down to 3.8 lei at yearend, although the ‘millstone’ choking the leu will remain, the budget plan for 2009 being a key factor, reads a study published yesterday by Raiffeisen.

“In the following period, the pressures for leu’s freefall will remain, especially if the local currencies in the region will embrace the same path versus euro”, said the analyst Martin Stelzeneder, in Raiffeisen Bank’s study.

He also estimates that in June, a euro will be traded at 4 lei, while in September the single European currency may be quoted at 3.95 lei.

“The government has not yet completed the budget plan for 2009 and it is still seeking for measures to reduce the budget deficit which is now at 5% of gross domestic product in 2008. In fact, everybody is waiting to see how the government will manage to chop the budget deficit. Therefore, the budget plan for this year may be a core factor in the evolution of currency exchange rate in the coming period”, reads Raiffeisen study.

Leu fell dramatically since the early trades of this year, from 4.0296 lei/euro in the first session of the year to 4.3025 rate registered yesterday.

The national currency dropped yesterday to 4.3473 lei/euro in the inter-bank currency market, however starting 15:15 in the afternoon, the leu recovered to 4.30 lei/euro, most likely due to the intervention of the central bank or to the major profits recorded by a large player.

“There was a player who sold foreign currency, but I am not sure it was BNR. On January 13, the currency exchange rate hit 4.35 lei/euro threshold, followed by a steep decline to 4.30 lei/euro. It is possible to be caused by the major profits recorded by a large market player”, said Ioan Birle, senior dealer at Banca Transilvania, quoted by NewsIn.

Scenario II: 4.50 lei/euro at the end of March

Raiffeisen’s predictions are different from the ones recently made public by ING Bank analysts, who expect a fall of the local currency down to 4.50 lei/euro at the end of March, with 4.70 lei/euro forecast for third quarter this year.

ING analysts say the reason why the leu is likely remain weak is the deepening recession in developed economies, and low chances for the central bank to intervene, due to high expenses on putting the breaks to the snowballing collapse of the local currency.

Understanding that capping the euro’s fast increase versus leu is too expensive regarding the economic growth, BNR allows the local currency to continue its depreciation, aiming a competitive depreciation in an effort to temper down the current account deficit. Thus, we have revised upwards our predictions on the peak of the exchange rate, now expecting it to reach 4.70 lei/euro in third quarter, with the possibility of actually outreaching this level”, reads the report drafted by senior economist at ING Bank Romania, Nicolae Chidesciuc.

Moreover, the modification of National Bank of Romania’s policy regarding the “shield” of the local currency will allow it to continue its downslide. The central bank will probably see a sharp devaluation of leu, as all its efforts are to temper down the current account deficit amid a permanent threat to the economic growth.

Furthermore, if BNR intervened constantly to shore up the local currency, it would fuel an excessive increase of interests in the inter-bank market, which would severely dent Romanian economic landscape.
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