Thursday, November 22, 2007

Romania cbanker warns against steep currency moves

BUCHAREST, Nov 22 (Reuters) - Romania's central bank governor warned against steep moves in currency exchange rates on Thursday, but steered clear of making specific comments about a sharp fall in the leu to 22-month lows against the euro.

The leu has fallen some 15 percent since hitting a 5-year high against the euro in July to reach a low of 3.6450 per euro on Thursday amid worries over Romania's swollen current account deficit.

Asked about the leu's fall on Wednesday and Thursday, Isarescu told a business television station: "In spite of the fact that we target inflation ... we are not comfortable with large exchange rate variations."

"We do not target the exchange rate ... but large exchange rate variations are not good for the economy and ... we reserve the right, without commenting, to have all sorts of policies ... sometimes obscure ones to stabilise the currency market."

Earlier on Thursday, an adviser to Isarescu, Lucian Croitoru, said the leu's decline represented a return to sustainable levels. His comments gave a further push down to the leu.

Investors are concerned Romania's double-digit current account deficit is unsustainable in the face of a global liquidity crunch and could spark a larger correction in the leu.

Isarescu also said the currency is a victim of turbulence on global markets.

"The situation on the currency market ... depends very much on what is going on in the world. And for three months, the word turbulence is current everywhere in the world," he said.
"Investors ... need to know the central bank will work with all intelligence to diminish (its) negative effects ... but we are in a globalised world and turbulences can be softened but in no way annihilated," Isarescu added.

The central bank and international observers have repeatedly urged the centrist minority government to tighten fiscal and wage policies to reign in demand and boost economic productivity and competitiveness.

The bank raised its benchmark interest rate to 7.5 percent in October as inflation surged above the 3-5 percent target for 2007. Analysts have said a deteriorating inflation outlook will prompt a new hike in January. (Reporting by Luiza Ilie; Editing by Ron Askew)

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