ING Sees Weaker Romanian Leu In 12 Months

„Our main concern regarding the local currency comes from what is happening in the real economy. Data so far pointed out that our moderately optimistic view was not warranted and that the fiscal situation is also much worse than expected,” ING said Monday in a report.

Thus, the economic growth outlook is seen weak for one year ahead, due to the austerity measures and the harsh fiscal reforms that might be needed for the next two to three years.

ING analysts anticipate that further productivity losses – given the current and expected state of the economy – may be compensated with a weaker leu as „probably rigidity in nominal wages is set to persist.”

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The bank expects only a weak recovery of the leu starting with the third quarter of 2011, so that the local currency might remain weak versus euro in 2011, too.

However, on long term, ING keeps a positive view over the leu.

The bank estimates an exchange rate of 4.2 against euro next month (from the previous forecasts of 4.15 lei/euro), 4.25/euro in three months (from 4.2/euro), 4.2/euro in six months (from 4.1/euro), and, respectively 4.35 lei/euro over 12 months, from 3.9 lei/euro previously seen.

ING estimates that Romania’s central bank has spent between EUR500 million and EUR1 billion in May to protect the local currency. However, despite the political tensions and the significant pressures on the monetary market, the central bank will continue to oppose to short-term volatility.

The Romanian leu opened flat versus the euro Monday, oscillating around 4.21 units, while the regional currencies were slightly appreciated, recovering part of the previous session’s falls.