UPDATE 1 - Romanian Leu Eases Further on Rise in Euro, Inflation Worries

November 7 (SeeNews) - Romania's leu on Wednesday weakened further against the euro, pressured by a rise in the euro versus the U.S. dollar, a rise in the central bank's 2007 inflation forecast and a downgrade in the country's outlook, dealers said.

The Romanian currency closed at 3.3920/970, weaker than 3.3750/80 on Tuesday and 3.3670 on Monday.

“There were negative factors that pressured the leu, both in the domestic and international plan," one dealer told SeeNews.

“The euro reached today record levels of 1.4630 versus the U.S dollar. The cause is yesterday's announcement from the Central Bank of China that it would modify the structure of its foreign exchange reserves. Bank of China’s forex reserves are the biggest in the world”, the dealer said.

The appreciation of the euro also affected negatively emerging markets currencies, including the leu.

The worsening macroeconomic environment in Romania also pressured the leu. The Romanian central bank has raised its annual inflation forecast for 2007 by 1.8 percentage points to 5.7%, beyond its target band, and revised its end-2008 inflation projection to 4.3% from an earlier 3.7%. “This fact, together with the S&P's revision of the outlook on Romania to negative was a sign for foreign investors that the Romanian economy is weak,” the dealer said.

Global rating agency Standard & Poor's revised its outlook on Romania from stable to negative on Monday.

The central bank set its reference exchange rate used for statistical purposes at 3.3969 per euro on Wednesday, compared to 3.3671 per euro on Tuesday. For the dollar, the reference exchange rate was set at 2.3149 versus Tuesday’s 2.3187 lei.

Interest rates on overnight leu deposits were at an average of 7.31%/7.83% on Wednesday, unchanged from Tuesday’s rates.

Turnover on the interbank leu deposit market fell to 1.239 billion lei on Tuesday, from 5.253 billion lei on Monday. The BNR will issue Wednesday's figures on Thursday.

Following are Wednesday'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):