March 11 (Bloomberg) -- Romania’s leu may weaken in the second half of the year as the economy contracts and the central bank faces pressure to lower interest rates, analysts at ING Bank Romania said.
“The central bank is very concerned about the foreign exchange, which means the leu should be capped at 4.3 to the euro,” Bucharest-based analysts including Nicolaie Alexandru- Chidesciuc said in a research note today. “The situation could change in the second half when we should see the first negative growth figures and pressure to cut rates from politicians.”
The leu has dropped 6 percent against the euro this year as investors withdraw from markets perceived as higher risk. Romania’s benchmark interest rate is at 10 percent, the highest in the European Union, which helps attract international investment and shield the leu from the affects of the global financial crisis.
The leu gained 0.2 percent against the euro in Bucharest to 4.2821 as of 10:50 a.m.
The central bank cut the rate a quarter percentage point last month after raising it seven times in the previous 15 months. Alexandru-Chidesciuc predicted higher-than-expected inflation will persuade the bank to leave the rate at 10 percent at its next monetary policy meeting on March 31.
Romania’s National Statistics Institute reported today that the annual inflation rate rose to 6.9 percent in February from 6.7 percent in January, partly because of a weaker leu. That was more than the 6.4 percent forecast in a Bloomberg survey of seven economists. No economist predicted faster inflation.
ING analysts also predict the economy will contract 3.5 percent this year after growing 7.2 percent last year, with the slowdown deepening in the second half of the year.