Tuesday, March 17, 2009

Romanian Leu Will Weaken to Record on IMF Bailout, Merrill Says

By Irina Savu

March 17 (Bloomberg) -- The Romanian leu will probably weaken against the euro after Romania secures an aid package from the International Monetary Fund to bolster its economy, according to Bank of America Securities-Merrill Lynch & Co.

“An IMF program is unlikely to halt a further slide of the leu,” Merrill analysts, including Radoslaw Bodys and Turker Hamzaoglu, wrote in a note to clients dated yesterday. “Depreciation tends to be part of the adjustment supported by IMF programs to reduce imbalances that often result from overvalued exchange rates.”

The leu may weaken to a record 4.45 per euro this year, Merrill said. The leu has dropped about 6 percent against the euro this year, touching a record low of 4.3529 on Jan. 13, as investors withdraw from markets perceived as higher risk. Romania’s key interest rate is at 10 percent, the highest in the European Union, helping to attract international investment and shield the leu from the affects of the global financial crisis.

Romania became last week the third European Union member to ask for a package of loans from the IMF, the European Union and other international groups to prevent a default as the economy slumped. Hungary, Ukraine, Belarus, Latvia and Serbia have already been provided with $35 billion in emergency loans.

To contact the reporter on this story: Irina Savu in Bucharest isavu@bloomberg.net.

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