Friday, November 16, 2007

Romanian Leu Heads for Weekly Loss Versus Euro on Risk Aversion

By Yon Pulkrabek

Nov. 16 (Bloomberg) -- The Romanian leu headed for a second week of declines against the euro as the country's inflation rate climbed above the central bank's target and investors shunned higher-yielding emerging-market assets amid a sell-off in equity markets.

The leu fell after a government report showed consumer prices rose 6.8 percent in October, exceeding the bank's 4 percent target, and Standard & Poor's lowered its outlook on Romania's sovereign credit rating to ``negative'' from ``stable.'' Global stocks declined, with the NTX Index of the 30 largest traded companies in Central and Eastern Europe dropping for a third week.

``It's hard to find any good stories about Romania these days,'' said Lars Christensen, a senior emerging-market strategist at Danske Bank A/S in Copenhagen. The leu's ``overvaluation is quite significant when compared with other central European countries'' and ``interest rates are quite low,'' he said.

The leu fell 1.7 percent in the week, and was trading at 3.4772 per euro by 12:58 p.m. in Bucharest, from 3.4205 on Nov. 9. The currency, which dropped to a year-low on Nov. 12, is the month's worst-performer against the European Union's common currency of the 26 emerging market currencies tracked by Bloomberg.

Romania's central bank raised its benchmark interest rate 50 basis points on Oct. 31, matching Hungary for the highest rates in the EU at 7.5 percent, in order curb rising inflation.

The rise was the first increase after cuts this year. Policy makers next meet to discuss rates on Jan. 7.

`Poor Fundamentals'

S&P cut its rating on Romania on Nov. 5 because of the country's widening current-account deficit and increasing government spending. ``The leu continues to suffer from last week's S&P outlook downgrade and poor fundamentals,'' analysts led by Gavin Friend at Commerzbank AG wrote in a client note.

In other trading, the Turkish lira gained 0.7 percent on the week against the dollar as the central bank cut it benchmark lending rate by 50 basis points to 16.25 percent. The lira rose to 1.1906, from 1.1990 last week.

The Polish zloty shed 0.9 percent this week, to 3.6724 per euro, from 3.6392, while the Hungarian forint was poised for its third weekly decline, to 254.16 per euro, from 253.71.

The Slovak koruna fell 0.1 percent to 33.083 per euro, while the Czech koruna was at 26.637 per euro, from 26.581 on Nov. 9.

To contact the reporter on this story: Yon Pulkrabek in Prague at ypulkrabek@bloomberg.net

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