Romania’s leu could strengthen to 3.50 against the euro by yearend, bank official says

Exchange rate fluctuations are closely connected to the speculative movements taking place on the hard currency market and the sterilization operations belonging to BNR, the chief economist of Romania’s second largest bank by assets, Florian Libocor said.

The bank official believes Romania should witness an economic increase of 6.1 percent this year. Regarding inflation, Libocor estimates prices should temper their growth towards the end of the year to 5.5 percent, against the 6.6 percent against the end of 2007.

Foreign direct investments (FDI) should cover a maximum of 38 percent of the country’s current account deficit, down against the 43 percent seen last year. Romania expects FDI to stand at 8 million euros this year.

The central bank is currently trying to control inflation through a series of measures taken especially within the inter-banking market. Romania witnessed a 6.57 percent inflation rate at the end of 2007, thus exceeding the 4 percent target it wanted to reach.

For the end of this year, BNR is aiming at a 3.8 percent inflation rate. After the 8 percent increase in January, the central bank voiced concerns over the level of consumption which stimulates inflation.

The present interest levels for the minimum mandatory reserves imposed on banks stand at 20 percent of banks' lei debts and 40 percent for hard-currency debts.

The central bank previously explained the overall demand level it is not backed by Romania's offer for goods and services. This has two main effects: it affects the external balance of payments and stimulates inflation, which widened over BNR's 4 percent target. BNR emphasized the main reason for the high consumption level resides in the increase of salaries, which exceeds labor productivity.

Source: NewsIn