During August the Romanian leu weakened marginally against the euro from 4.9132 to 4.9328. In the opinion of analysts at MUFG Bank, the leu’s gradual depreciation trend is set to remain in place.
NBR to tighten policy in response to building upside risks to inflation
“The case for tighter policy continues to build on the back of deteriorating outlook for inflation. The key policy rate appears too low compared to the more elevated rate of inflation. The NBR significantly raised its own inflation forecast for the end of this year to 5.6% and expects it to then ease to 3.4% in 2022. Inflation has already reached 5.0% in July.”
“The pandemic recovery has so far proven stronger than expected with consumer spending picking up. Romania’s economy expanded by 1.8% in Q2 and is on track to rebound by around 7.0% in 2021 as a whole following a contraction of -3.9% in 2020. The strong rebound in domestic demand is expected to widen the current account deficit towards 5.0% of GDP.”
“The leu should be allowed to weaken in the year ahead to provide an offset to Romania’s elevated twin deficits and deeply negative real rates on offer.”