Romanian bank tries to boost troubled leu

BUCHAREST/VIENNA (Reuters) – Romanian central bankers threw a lifeline to the battered leu currency yesterday, but markets remained wary of buying the currency because of persistent worries over economic fundamentals. The central bank deputy governor, Cristian Popa, said the leu’s fall to three-year lows this week had gone too far. Meanwhile, an adviser to the bank’s head said the unit remained attractive after a recent interest rate hike. The central bank raised its benchmark rate by half a percentage point to 8 percent earlier this month to curb resurgent inflation, which jumped to 6.6 percent in December, way above its 3-5 percent target. «What we have at the moment is a bit of an overshoot,» Popa said during a conference in Vienna. He added that Romania needed tighter monetary policy to offset risks to the economy. Economists widely expect the bank to further tighten monetary policy when it meets in February, as import-driven consumption continues to fuel a double-digit current account deficit and feed inflationary pressures. Adrian Vasilescu, an adviser to central bank Governor Mugur Isarescu, wrote in an opinion column in Ziarul Financiar daily that numerous market players had amassed hard currency based on the idea that the leu would continue to depreciate. «They do not understand something elementary: that it only takes one look at the monetary policy interest rate to see that it is more advantageous to have the leu in the race taking place in this market.» The leu has crumbled more than 17 percent from when it hit an almost five-year high against the euro in July 2007 to a near three-year low of 3.7240 earlier this week. «Central bank officials are trying to support the leu through these statements,» said Nicolaie Alexandru-Chisdeciuc, senior economist with ING Bank in Bucharest.