Romanian Leu Likely To Rebound – Ctrl Bk Governor

“I think the leu has enough strength to come back and rebound at a certain point,” Isarescu said.

The Romanian currency fell to a new three-year low against the euro midday Tuesday, mirroring global trends and depressed by worsening investor sentiment on Romania’s economic fundamentals. It sank to RON3.7619 to the euro from RON3.7202 Monday, according to the bank’s indicative average daily rate.

Isarescu said the leu’s sharp fall in the last two months was triggered by global capital outflows but also by the Romanian Government’s massive budget spending at the end of 2007.

“It’s a bad habit to engage in major budget spending in the last two months of the year,” Isarescu said. “The Finance Minister showed local authorities spend more than 1% of gross domestic product. Such massive spending in only 10 days is bound to make waves on the forex market,” he added.

Isarescu also said the leu wouldn’t have fallen so hard had it not been for this large amount of money being thrown into the market.

Romanian Economy and Finance Minister Varujan Vosganian said mid-January that the country’s general consolidated budget posted a deficit of 2.4% of GDP in 2007.

The central bank has been draining lei off the market on a daily basis, but is having a hard time draining the excess liquidity, Isarescu said. He added the bank might step in two times a day if necessary.

The leu fell nearly 16% against the euro in the last six months of 2007 to RON3.6102 end-December from a five-year high of RON3.1112 in July. Since the start of this year, the leu lost more than 4% against the euro.