EIU Sees Stronger Romanian Leu In ’10, At 3.97 Units

However, the median exchange rate is seen appreciating only modestly to 4.27 units per euro in 2010, from 4.29 units in 2009, EIU said in its November outlook report for 2010-11.

In 2011, the leu is forecast at 3.97 units against the euro at year-end, while the average exchange rate is expected to strengthen to 4.12 units per euro.

EIU estimated the leu will appreciate against the US dollar as well and sees the exchange rate at 2.93 units in December 2009 and at 2.87 units in 2010. At year-end 2011, the EIU analysts predict the leu would trade at 2.82 units versus the greenback.

The median exchange rate is likely to strengthen to 3 units per US dollar in 2010 from 3.07 units at the end of 2009. In 2011, the rate is seen at 2.95 units per US dollar.

EIU said the leu fell to a historic low of 4.3 units per euro in February this year, despite central bank intervention, but rallied after the country announced its EUR20 billion multilateral aid agreement with the International Monetary Fund, the EU and other lenders.

Romanian annual inflation rate is expected to fall to 3.8% in 2010 and further to 3.3% in 2011, provided that fiscal and incomes policies are tightened, the analysts said.

EIU expects the leu will come under increased pressure if the political situation is not resolved and the government fails to keep public spending in check during the fourth quarter.

"The central bank has announced that its interventions in the foreign-exchange market will be 'cautious,' which could result in increased volatility," EIU said, adding that a correction to the exchange rate of the "long-overvalued leu" was desirable.

Romanian leu might still be "significantly overvalued", the report noted.

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