By Marius Zaharia
BUCHAREST, Nov 22 (Reuters) - The Romanian leu’s nearly 15 percent fall in recent months is set to continue into next year as the government’s failure to address imbalances in the economy weighs on investors’ minds.
The leu has fallen to nearly 3.6000 per euro <EURRON=> on Thursday, compared with July’s five-year high of 3.0870, after the global market liquidity crunch triggered a wave of risk aversion towards emerging markets.
Romanian equities have also been hit hard, with 10-share blue chip index <.BETI> down around 15 percent this month alone. But analysts said a yawning current account deficit, high household credit and upcoming general elections will keep markets on a backfoot in 2008.
“The current account deficit is Romania’s main vulnerability. There is room for more leu weakening as market feeling is totally unfavourable,” said Ionut Dumitru, head of research at Raiffeisen Bank in Bucharest.
Giving the fall further impetus was a move earlier this month by ratings agency Standard & Poor’s to revise Romania’s outlook to negative from stable due to worries over a lack of policies to contain the current account deficit.
Officials see the external shortfall reaching up to 14 percent of gross domestic product this year and hovering around the level in the medium term.
“The problem is we do not have adequate policies to adjust the current account gap, but more than that, there isn’t even a sign that something will change, because there is an election year coming up,” Dumitru added.
For months analysts have been warning that post-Communist countries with large external imbalances were at risk of losing the market’s trust even though their economies were racing along well ahead of those in western Europe.
Bulgaria and the Baltics, for example, have also seen pressure build on their currencies. But they have currency boards in place to fix the exchange rate.
Lars Christensen of Danske Bank said the problem has been exacerbated by the large amount of foreign currency household loans that make the economy even more vulernable to foreign exchange rate swings.
“In general this is a reflection of the change of mind (in investors) on central European economies with large imbalances. They are seizing on negative news much quicker now,” he said.
The central bank and the International Monetary Fund have repeatedly urged the centrist government, which commands only 20 percent of seats in parliament, to tighten fiscal and wage policies to reign in demand and boost economic competitiveness.
The bank raised its key rate to 7.5 percent in October as inflation surged way above the 3-5 percent 2007 target. Analysts say a deteriorating inflation outlook will prompt a new hike in January, which may have a short-lived effect for the leu.
The central bank has agreed saying a restrictive monetary policy has only limited powers to safeguard the economy from a hardlanding. “The central bank can compensate for loose fiscal policy by hiking rates … but the key really to an improvement in the fundamentals lies on the fiscal side,” said Lucy Bethell, a currency strategist at the Royal Bank of Scotland in London.
“It is a question of how quickly the government responds to the pressures to tighten up.” Some analysts said the leu may get a slight reprieve towards the end of the year, benefitting from seasonal workers’ remittances and quarterly tax payments to the state budget.
However, the negative sentiment will only be suspended, not eliminated.
“A further hike would only temper the leu fall for the short term, because everybody is looking at current account figures. I am very pessimistic about the leu trend next year because of that,” said ABN AMRO analyst Catalina Constantinescu.
(Editing by Alan Crosby)
Categories: Grupa IV
Tags: economie, finante, inflatie, leu, prognoza
Leave a Reply