Romanian Leu Weakens vs Euro in Tune with Regional Peers

The leu ended at 4.2990/3020 per euro, compared to 4.2965/2970 per euro on Wednesday.

The leu, which was volatile, tracked its regional peers and was traded between intra-day high of 4.2930 and intra-day low of 4.3030, one dealer told SeeNews. He expects the Romanian currency to continuing trading around the 4.3-per-euro notch on Friday.

Romania’s central bank, BNR, set its reference exchange rate at 4.2967 lei per euro on Thursday, compared to 4.2952 on Wednesday. For the U.S. dollar, the BNR set its reference exchange rate at 2.8747 lei versus Wednesday’s 2.8566.

"Last month's developments in the political field triggered an increase in investors' risk aversion for Romania," Raiffeisen Research said in its October monthly economic overview for Romania released on Thursday. "We think that if political instability would persist more, then pressures for leu depreciation might be higher."

"Until now, the increase in risk aversion for Romania has been materialized only in a marginal depreciation," it noted.

Political uncertainty has been high in Romania following the fall of the country's minority government in October and the rejection of prime minister-designate Lucian Croitoru's cabinet by parliamenton November 4. Two days later, Romania’s President Traian Basescu nominated the mayor of one of Bucharest districts, Liviu Negoita, as prime minister-designate.

According to analysts, Negoita who is member of ruling Democrat-Liberal Party, has slim chances of winning approval for his cabinet in parliament, where the opposition controls two-thirds of the seats.

Due to the political turmoil, the International Monetary Fund suspended last week Romania’s economic review under a stand-by arrangement with the European Union member state, and postponed its third loan tranche until the country has a stable government in place.

"The highly volatile political climate and its negative impact on the agreements Romania reached with the international institutions and on government’s policies is the main reason for the adjustments in the exchange rate scenario," Raiffeisen Research said, adding it expects the leu trading at 4.30 per euro until March and slightly depreciating by the end of 2010.

Turnover on the interbank leu deposit market rose to 3.743 billion lei on Wednesday from 3.556 billion lei on Tuesday. The BNR will issue Thursday’s turnover figures on Friday.

Interest rates on overnight leu deposits fell to 7.09%/7.59% on Wednesday from 7.66%/8.16% on Wednesday.