National leu currency to depreciate slightly by year-end

The financial analysts believe that the predictions of the evolution of the national leu currency’s exchange rate should be revised, given the Romanian economic growth in the first half-year, the uncertainty over the investors’ interest and amid the developments of the currencies in Central and Eastern Europe.
Thus, Raiffeisen Bank chief economist Ionut Dumitru has revised his prediction to a slightly depreciated exchange rate in December at 3.6 lei to the euro, while Uni Credit Tiriac Bank chief economist Rozalia Pal anticipates an exchange rate of 3.58 lei to the euro in December, the Capital weekly reports.
Dumitru argues the leu’s depreciation tendency will continue in 2009 too, even though it will no longer see the big fluctuations registered so far.
On the other hand, chief economist at the Banca Comerciala Romana (BCR) Lucian Anghel stands by his prediction of 3.5-3.6 lei to the euro by year-end, with fluctuations generated by the rise in the market liquidity during the peak repayment of the public debt and the foreign exchange repatriation in December.
The higher-than-expected economic growth in the first half-year turns into a double-edged sword, since it indirectly leads to a widening current account deficit and to a weakening of the national currency.
The Romanian gross domestic product (GDP) totaled 195.764 billion lei (some 53.33 billon euros) in the first six months, up by 8.8% on the same period in 2007, with the year-on-year economic advance in the second quarter being 9.3%, according to estimations made by the National Institute of Statistics.
Such higher-than-expected growth was a pleasant surprise for some analysts, while for others it was a reason for concern. “For such a GDP growth, it is impossible that the current account deficit may reach 17-18% of GDP this year”, Anghel said in a reference to estimations made by certain foreign analysts. On the other hand, the economic growth is a very important indicator for the medium- and long-term investors. “If the economic growth is kept for a longer time above the EU average, then it may create the possibility for the central bank to cut the key interest rate as early as in January 2009”, Anghel stressed.
For other analysts, the GDP growth is not sustainable economically. “I’m somewhat more skeptical in this respect. An economic growth based on an upward evolution of the volatile branches prompts us not to bet on the appreciation of the exchange rate”, Raiffeisen Bank chief economist Dumitru said.
Indeed, the GDP advance scored in the first half-year is based on the monthly growths in the construction sector, on a very good agricultural year and on the accelerated industrial production.
“I do not think the same situation will happen in 2009 too, and the economic growth will slow down the same as in the euro area, on which we are dependent”, he stressed.
The exchange rate of the leu announced on September 10 by the banks authorized to operate in the foreign exchange market is 3.5974 lei to the euro.
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