The leu bounces back slightly, Citi Group recommends BNR raise interest to 9%

Dealers on the market say that the rise in the national currency is due to declarations by National Bank of Romania (BNR) officials that the rapid devaluation of the Romanian leu is unsustainable and that its nature worries the central bank. BNR has attracted RON 2.14 billion from the market in one-week deposits, with an interest rate equal to the 8 percent for monetary policy.

Citi Group analysts feel that BNR should increase the monetary policy interest rate to an annual 9 percent in order to be able to control the pressure of a weakening national currency. Citi Group experts expect an initial 0.5 percent increase in February. The Citi Group study further indicates that a harsher response, namely a 0.75 percent rise in the reference rate, would be much more prudent considering current market conditions.