Downgrade in S&P Outlook on Romania, Rise in C-bank Inflation Forecast Pressure Leu

November 5 (SeeNews) - The Romanian leu weakened against the euro on Monday after global rating agency Standard & Poor's downgraded its outlook on the EU newcomer to negative and the central bank raised its inflation forecast for the current year, dealers said.

"The S&P downgrade had a stronger depreciating effect on the leu today than the inflation report of the central bank, because they [the central bank] already voiced their concerns about inflation developments last week", the dealer said.

The leu traded at 3.3670 lei per euro at 5 p.m. (1500 GMT), softer than 3.3480 at the opening and 3.3500 at Friday's close, one dealer told SeeNews.

Global rating agency Standard & Poor's said earlier on Monday it revised its outlook on to negative from stable to reflect the government's limited policy response to the country's rapidly growing external imbalances, against the background of increasingly difficult global credit conditions.

Also on Monday, Romania's central bank said it has raised its annual inflation forecast for 2007 by 1.8 percentage points to 5.7%, above its target band, and has raised its end-2008 inflation projection to 4.3% from an earlier forecast 3.7%. On Wednesday BNR raised its monetary policy rate to 7.5% from 7.0%, saying end-2007 inflation will exceed the upper limit of the three-to-five percent target band.

The central bank set its reference exchange rate used for statistical purposes at 3.3458 per euro on Monday, compared to 3.3408 per euro on Friday. For the dollar, the reference exchange rate was set at 2.3149 versus Friday's 2.3078 lei.

Interest rates on overnight leu deposits were at an average of 7.29%/7.81% on Monday versus 7.24%/7.80% on Friday.

Turnover on the interbank leu deposit market rose to 1.225 billion lei on Friday from 1.04 billion lei on Thursday. The BNR will issue Monday's figures on Tuesday.

Following are Monday's average bid and ask quotes of commercial banks on Romania's interbank market. They were calculated at 11 a.m. (0900 GMT) by the BNR, based on data provided by 10 commercial banks (in percent):