Deutsche Bank: Sell euro against lei!

According to the German bank’s analysts, the main risks that investors are subject to on three-month lei deposits, targeting a RON 4/€1 exchange rate, are the effect of contagion of the difficult situation on the other emerging markets, especially in the Baltic countries.

Deutsche Bank states that the leu has been the most stable floating currency in the eastern part of the European Union, with marginal fluctuations around the RON 4.2/€1 value since March, when Romania secured a €20 billion loan from the International Monetary Fund.

“A sharply reduced financing gap and more compelling valuation metrics suggest that the leu’s underperformance should be nearing an end,” according to a Deutsche Bank report.

Dealers say that the central bank has repeatedly intervened on the currency market, to prevent the national currency from depreciating below RON 4.25-4.3/€1, and this could hamper meeting the 2.5-4.5 percent inflation target by year-end, the Deutsche Bank report states. Dealers further said that this scared off many foreign players, and made Romania’s currency market less liquid compared to markets in the region, and mostly driven by commercial orders to local banks.

According to analysts and dealers, BNR’s interventions on the currency market and the poor current account position were the reasons for which the leu was not part of this summer’s regional rally. The Deutsche Bank report also indicated that the economy shows signs of bottoming out. This, together with a growing debt market, on the back of government issuances, could ensure foreign inflows in support of the leu.