UPDATE 1 - Romanian Leu Closes Cheaper than 3.5 per Euro, Worse than Expected

November 20 (SeeNews) - The Romanian leu on Tuesday closed weaker at 3.500/505 per euro, touching a fresh 12-month low because of Romania's deteriorating macroeconomic image, dealers said.

“We didn’t expect the leu to depreciate so much and so quickly [versus the euro]. The causes are the same as in the last days, the news about the Romanian economy,” one dealer told SeeNews.

Romania's worsening macroeconomic environment has put pressure on the leu for two weeks now since the BNR raised its annual inflation forecast for 2007 by 1.8 percentage points to 5.7%, beyond its target band of 3.0%-5.0%, and revised its end-2008 inflation projection to 4.3% from an earlier 3.7%. Consequently, global rating agency Standard & Poor's has revised its outlook on Romania from stable to negative.

The Romanian currency opened at around 3.5 lei per euro, then gained ground to 3.4930/60. By the end of trading hours, it depreciated beyong the 3.5 lei per euro level. It last traded cheaper on November 14, 2006, at 3.5057 lei per euro, central bank data showed. It ended at 3.4850/70 on Monday.

”I don’t expect the leu to exceed significantly the 3.5-per-euro level by the end of the week,” the dealer added.

"It's about the recent trend of depreciation, caused by a number of reasons, which gave much room for speculative moves on the market," the dealer said. "The widening current account gap, the changing of the inflation target by the central bank, the S&P negative outlook, but also the appreciation of the euro versus the dollar: all these factors work against the leu at the moment," another dealer told SeeNews earlier on Tuesday.

Romania's current account deficit for the first nine months of 2007 rose by 76.5% on the year to 11.801 billion euro ($17.44 billion) due to a widening trade gap. Romania's trade deficit for the nine months through September rose by 67% year-on-year, reaching 12.265 billion euro on a FOB/FOB (free-on-board) basis.

Romania's central bank (BNR) set its reference exchange rate, used for statistical purposes, at 3.4948 per euro on Tuesday, compared to 3.4833 on Monday. For the dollar, the reference exchange rate was set at 2.3648 versus Monday’s 2.3800 lei.

Interest rates on overnight leu deposits fell to an average 4.41%/5.28% on Tuesday from 6.35%/7.02% on Monday.

Turnover on the interbank leu deposit market rose to 7,307 million lei on Monday, from 1,154.8 million lei on Friday. The BNR will issue Tuesday's figures on Wednesday.

Following are Tuesday'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):

($ = 0.6766 euro)