Friday, January 7, 2011

Romanian Leu May Reach 4.15 per Euro in 1st Quarter, ING Says

Romania’s leu may rise 2.8 percent versus the euro in the first quarter after the country met terms of its bailout loan and will probably secure a new International Monetary Fund accord,ING Groep NV said.

The currency will probably strengthen to 4.15 per euro from 4.2677 as of yesterday’s close and will end the year at 4.2 per euro, Nicolaie Alexandru-Chidesciu, an ING chief economist in Bucharest, wrote in a report published today. ING previously estimated the leu will weaken to 4.34 per euro by June and end this year at 4.25. The leu gained 0.1 percent to 4.2612 per euro as of 11:37 a.m. in Bucharest trading.

The government won lawmakers’ approval of the 2011 budget and key wage and pension legislation before a Dec. 31 deadline to qualify for the next payments under a 20 billion-euro ($26.3 billion) bailout secured in 2009. The country, which stands to receive 2.4 billion euros through March, may get a precautionary loan from the IMF in April to strengthen its credibility and streamline its fiscal system.

“The increased commitment for complying with IMF requirements is much more evident lately in political speeches and deeds,” Chidesciuc wrote. “This suggests the new agreement with the IMF will be reached before the end of the current one in April and increases the likelihood for achieving the 2011 budget-deficit target.”

New Talks

Talks over a new IMF deal will take place Jan. 20-27, “with the impact likely to be leu-positive,” Chidesciuc said.

The country’s “weak” economy, which probably contracted 2 percent last year, according to IMF forecasts, wouldn’t support significant leu gains versus the common currency and the central bank will work against too much appreciation, the ING analyst also wrote.

Romania’s economic contraction extended to a seventh quarter with the second-biggest slump in the European Union after Greece in the third quarter as a tax increase and wage cuts sapped demand.

Gross domestic product shrank 2.5 percent in the third quarter from a year earlier after the government raised a consumption tax by 5 points and cut public wages by 25 percent last year to reduce a budget gap within an IMF-agreed target of 6.8 percent of GDP.

The state pledged to narrow the budget deficit to 4.4 percent of GDP this year from a preliminary shortfall of 6.6 percent of GDP in 2010 and 7.2 percent in 2009.

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

To contact the editor responsible for this story: James M. Gomez in Prague atjagomez@bloomberg.net

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