ING Sees Romania’s Leu Trading At 4.3/Euro In Q3

ING said the leu’s recent evolution in the market, due to official news of a five-percentage point increase of the value added tax to 24%, would be followed by a firm response from the central bank. So far, the bank has signaled the situation is under control and it didn’t seem to intervene in the market.

„However, it is less normal to see such price action not curbed by FX interventions, as this had become the norm since the fall of 2008,” the report noted. „Only in May our revised estimates for FX intervention indicated a volume of EUR1.5 billion,” it added.

According to ING analysts, the central bank has been trying to calm expectations for further depreciation of the leu, after a bank official blamed the leu’s weakening on the VAT increase.

„It seems that households are too scared to listen, but companies are not yet worried. If the latter decide to buy euros as well, then FX intervention would become almost mandatory,” ING said.

The leu’s exchange rate sank to a fresh historic low against the euro Tuesday, at 4.3523 units, despite a slight recovery in market trading in mid session.