“We estimate a year-end rate of RON4.39 per euro… The macroeconomic pattern shows the leu is undervalued,” said Dumitru Dulgheru, an economist with BCR.
Speaking at the presentation of BCR’s 2012 Top 10 Challenges report, Dulgheru said the leu’s depreciation over the past days was solely a reaction to the government’s collapse on Friday.
Romania’s shrinking budget deficit, together with an economic recovery as of the second half of 2011 and lower interest rate differentials are macroeconomic events that would normally point to an appreciation of the currency, BCR said.
According to BCR estimations, a balanced rate of the leu would be of around RON4 per euro.
Central bank governor Mugur Isarescu said Wednesday that although the leu’s depreciation against the euro seems to be a reaction to the political turmoil, it could also reflect a shift in macroeconomic fundamentals.
“For now, the decline seems to be a reaction to the political events… However, it’s possible the fundamentals could be shifting, after three years during which the inflation differentials were not in our favor,” Isarescu said.
Romania’s currency took a hard hit in the few days after the government fell on Friday, dropping around 1% versus the euro since. However, the leu seems to have stabilized following reassuring comments from the Finance Ministry that the new government will stick to an IMF/EU-backed fiscal and economic program.