Romanian leu continues to surge

Wednesday, February 23, 2005 The leu, Romania's national currency, continues to appreciate against the euro and the US dollar after it reached high levels a few days ago. Yesterday, one euro could be bought for just 35,844 lei, down from 36,133 lei two days ago. These rates are also significantly stronger from the period in mid-2004 when the euro was worth more than 40,000 lei. Last week, the leu reached such a high rate against the euro that the National Bank of Romania had to intervene and restore the exchange rate back to around 37,000 lei per euro. The leu's growth also had an impact on global exchange rates, weakening the US dollar worldwide by 1%.

The National Bank, however, is hesitant to intervene in the marketplace once again due to the positive effects of the leu's appreciation on importers, who can now get products for lower prices, and for consumers, who now have higher purchasing power for imported goods. Romanians are also pleased that their currency, which has faced long periods of fairly sharp depreciation in the 1990s due to high inflation, is finally picking up again and strengthening against other currencies.

The leu's appreciation, however, isn't all positive, because it is putting a great deal of pressure on exporters. Other countries are finding Romanian exports more expensive, and therefore less competitive, due to the leu's appreciation, and this could widen the already large account deficit in the country.

Analysts predict, however, that the leu's surge cannot be stopped and it will continue strengthening against the euro, reaching a rate of 34,000 lei for one euro in the next week.

The current leu will be replaced in July 2005 with the New Leu (RON), with 10,000 old lei = 1 New Leu. The revaluation is expected to prepare Romania for adoption of the euro in 2012. Starting from next month, all Romanian prices must be shown in both the old currency and the new currency. The National Bank of Romania has said that it expects the exchange rate between the New Leu and the euro to hover at around 3.5 RON = 1 euro when the RON is introduced.