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Analysts expect the leu to strengthen below RON 4/€ 1

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.

Isarescu indicated that lending will resume more rapidly for corporations, as long as banks have rather few poor performing loans. "Personally, I am more concerned about the cost banks are assuming with the very high interest rates for deposits," Isarescu said.The appreciation of the leu is beneficial mainly to those who took out foreign currency-denominated loans. However, those who borrowed lei are also at an advantage, as interest rates will be cut. Some bankers are already lowering interest rates on deposits and a reduction on rates for loans is to follow.

All these elements, as well as positive signals registered in the economy, such as a rise in industrial turnover and orders and stagnation of retail after five months of constant decline, could be a sign that the hard part is over. "This is the correction for an exaggerated pessimism. The signs are encouraging, but they must turn into a trend," said the Chief Economist of Banca Comerciala Romana, Lucian Anghel.However, businessman George Copos, owner of the Ana group, is still pessimistic. "We are now seeing the first real signs of the crisis. We cannot speak of an end. The cut in the key rate is still small and another must follow. The CRR [cash reserve ratio] for foreign currency is still very high and it should drop," Copos said.

 

Sursa: http://www.actmedia.eu

Tags: below rates ing euro bnr

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