Favorable picture for the leu: Citi sees national currency strengthening to 3.95 against euro

Citi has revised downward its projection on the evolution of currency exchange rates, down to 3.95lei/euro by the end of 2009, versus prior forecasts of 4.12 lei/euro, reads a report released today.
Citi analysts expect the leu/euro at around 4.10 in second quarter, 4.00 in third quarter, and 3.95, by year-end.

As Citi analysts said, the IMF-EUled package, constitutes an important step in alleviating concerns over the country’s large external financing needs.

“In our view, IMF is comfortable with NBR’s active involvement in order to cap the excessive volatility. This, combined with a more credible macroeconomic framework supported by IMF/EU-led package should support the leu, if the global risk appetite doesn’t deteriorate significantly”, reads the Citi report.

The above-noted factors paint a favorable picture for the leu in the near-term, Citi analysts say, taking into account some risk factors which require close monitoring.

“For instance, in the event of a rapid leu appreciation, the NBR may opt for intervening through selling RON”.

The large deviations from the economic program’s fiscal targets and political noise ahead of Presidential
elections in November, may undermine investor sentiment, thereby adversely affecting the currency.

“As for the last risk factor, we believe is less probable for NBR to intervene, only if the leu’s devaluation is accompanied by a sudden halt in the adjustment of external deficit”, Citi analysts say.

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