The Czech crown, meanwhile, is seen gaining 1.3 percent, the zloty 1.1 percent and the forint half a percent. Analysts projected a firmer rate of 4.715 for the leu on the 12-month horizon in a survey a month ago, before the government announced a package of tax measures and changes in pension rules in mid-December.
“The political unpredictability is likely to burden the investment climate sooner or later and also the RON (leu) in the medium term,” Commerzbank said in a Jan. 8 note. The measures, which hit various business sectors including banks and energy firms, knocked Romanian shares, turning Bucharest’s main stock index into one of the region’s worst performers from one of the best.
Romanian stocks have regained some of the losses since then, but the leu touched a 7-month low of 4.6767 versus the euro on Wednesday. The Romanian central bank, which increased interest rates last year, kept them on hold at its first 2019 meeting on Tuesday as inflation has come down sharply from mid-2018 levels of around 5 percent.
But the bank’s veteran governor, Mugur Isarescu warned that the government “reckless” new measure, which links a new tax on bank assets to the level of money market rates, would compromise the efficiency of monetary policy.
“A key question in 2019 is how the NBR would respond to potential weakening pressure on the leu coming from twin deficits and exacerbated by government’s preference for low interest rates,” Erste analyst Eugen Sinca said in a note dated Jan. 8.
“We continue to favour the scenario of a modest depreciation of the leu (2-3 percent), with the exchange rate potentially playing the role of a relief valve for easing pressures in economy,” he added. While a surge in wages in the region’s tight labour markets has increased Romania’s trade deficit by boosting imports, the Czech Republic and Hungary have trade surpluses and stable state finances.
The crown is expected to be driven by expected further interest rate increases by the Czech central bank. The 25.3 rate against the euro projected for the next 12 months is weaker than 25.13 projected in a poll early last month.
Criticism of Polish central bank Governor Adam Glapinski over the pay of a key aide left no lasting mark on long-term zloty forecasts, even though it contributed to some jitters in the market in the past days. The poll sees the zloty firming to 4.25 against the euro over the coming year, compared with a 4.26 forecast a month ago.