Tuesday, April 21, 2009

Romanian Leu Drops to Three-Week Low as Investors Shun Risk

By Ewa Krukowska

April 21 (Bloomberg) -- Romania’s leu slumped to a three- week low against the euro as investors sold emerging-market assets on concern that prospects for rising bank losses may delay the global economic recovery.

The leu depreciated as much as 1 percent to 4.2535 against the euro, the weakest level this month. The NTX Index of 30 companies in central Europe fell 0.3 percent after Bank of America, which lost more than three-quarters of its market value in the past year, said yesterday its charge-offs for bad loans more than doubled in the first quarter.

“Worries about the condition of the financial sector are rising again and this makes investors sell riskier assets and flee to safe havens,” said Marcin Grotek, financial markets analyst at Raiffeisen Bank in Warsaw.

The leu dropped 0.7 percent to 4.2429 per euro as of 11:47 a.m. in Bucharest, extending its decline to 17 percent in the past six months amid concern that the economy is sliding into a recession.

Romania agreed to a 20 billion-euro ($26 billion) financing package led by the International Monetary Fund last month to cover its budget and current-account deficits. The government and the IMF predict the economy will shrink by as much as 4 percent this year after growing 7.1 percent in 2008, the fastest pace in the European Union.

IMF Credit

The Polish zloty dropped 0.2 percent to 4.4236 against the euro, weakening for a fourth day as the optimism linked to a flexible credit line that the government is seeking from the IMF cooled. Finance Minister Jacek Rostowskisaid on April 14 Poland is eyeing $20.5 billion under a lending program for countries with sound public finances.

“The credit line is just an instrument to help stabilize the zloty, it won’t drastically change investor sentiment,” Grotek said, forecasting the zloty could fall to between 4.5 and 4.6 against the euro within the next two months before recovering.

The IMF lending program supports Poland’s A2 credit rating, Moody’s Investors Service said yesterday. The credit line should boost Poland’s chances of adopting the euro in 2012 and reduce “external liquidity risk,” Kenneth Orchard, a senior analyst at Moody’s, said in an e-mailed statement.

The Czech koruna lost 0.1 percent to 27.117 against the euro as central bank Governor Zdenek Tuma said today the bank’s new forecast will probably show the economy will shrink this year more than the 0.3 percent previously forecast.

The Hungarian forint reversed earlier losses, rising 0.2 percent to 299.15. Earlier it broke through a key level of 300 and dropped to its weakest since April 4. The Turkish lira depreciated 0.2 percent to 1.6578 against the dollar.

To contact the reporter on this story: Ewa Krukowska in Warsaw atekrukowska@bloomberg.net

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