Romanian leu gains ground as new government takes office

Romanian leu gains ground as new government takes office Author: Doinita Dolapchieva. Licence: All rights reserved.

BUCHAREST (Romania), January 5 (SeeNews) - The Romanian leu gained ground versus euro on Thursday after parliament approved a PSD-ALDE coalition government but the recovery could be just temporary, analysts said.

The leu firmed as a result of pricing out political risks after the hearings of government ministers in parliament went smoothly and the cabinet was voted into office, ING analysts said.

"The [leu/euro] pair returned higher in late transactions, but this looks temporary. With a new government sworn in late yesterday, a calmer domestic political backdrop and favourable regional trends, the Romanian currency could continue to strengthen in the following period, something which we had been expecting sooner or later," ING analysts said in a daily note on Romania.

They also noted the optimism of the new finance minister, Viorel Stefan, who said during Wednesday's hearings that Romania's 2017 budget deficit would be kept within the 3%/GDP limit recommended by the European Union.

The statement of the new finance minister has possibly eased some concerns about fiscal slippages for now, ING Bank concluded. Romania's president Klaus Iohannis expressed concern over the budget deficit in a statement he made during the ceremony for appointing the new ministers on Wednesday night.

"You have to deliver what was promised during the campaign. I hope someday you will tell me how you are going to stay within the 3% budget deficit while increasing wages, lowering taxes and so on," Iohannis said at the ceremony televised live by Digi 24 broadcaster.

Starting January 1 additional fiscal easing measures took effect: a cut in the standard VAT rate to 19% from 20%, a lower excise for fuels and scrapping of tax levied on industrial and infrastructure construction projects.

Romania's central bank, BNR, set its reference exchange rate at 4.5182 lei per euro on Wednesday, up 0.02% from 4.5175 lei per euro on Tuesday.

On Thursday morning, the leu changed hands between 4.5080 and 4.5129 against the single currency, according to real-time interbank forex trading data published by local portal Conso.ro.

On December 28, the leu fell to its lowest level against the euro since August 2012, as political tensions heightened after election winners PSD threatened to seek the suspension of president Klaus Iohannis over his refusal to appoint their first candidate for prime minister.

Sevil Shhaideh was the first nomination of the PSD-ALDE but the president turned down the proposal. The second nomination was telecommunications minister Sorin Grindeanu. Iohannis accepted that proposal last week.

The new government's most urgent task will be to prepare the 2017 budget, which should be voted on by mid-January, PSD leader Liviu Dragnea has said.

The governing programme announced by PSD envisages an increase of pensions and salaries, the construction of five new highways, new high-speed railways and eight regional hospitals, and the creation of more than 800,000 jobs.

(1 euro=4.5182 lei)

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