Moreover, economists within the Citi financial institution raised their leu-euro exchange rate forecast for the end of 2009 to RON 4.1 from RON 3.95, due to the sharp decline in the economy and “political noise.”
ING Bank Romania analysts said that the central bank is trying to control too many objectives with limited instruments and warn that such a strategy could fail, according to the Mediafax news agency. Furthermore, they added that, according to the scientific literature, a state can only meet two of the following three goals: price stability, fixed exchange rate or with low volatility, and capital mobility.
Considering its status of member of the European Union, Romania has only two options. “The freedom of capital is given. Thus, theoretically, but only theoretically, the choice is between inflation and the exchange rate,” the Chief Economist of the National Bank of Romania (BNR), Valentin Lazea, told Business Standard.
ING officials also said that the funds that were and will be obtained from the European Commission are and will be used to finance the budget deficit, which means higher pressure, in terms of a depreciation of the leu in the medium-run, considering that the amount is €5 billion.
