Bulgarian central bank denies report on lev’s value

SOFIA (Reuters) – Bulgaria’s central bank yesterday denied a newspaper report quoting Deputy Governor Dimitar Kostov as saying the real value of the lev currency was 1.10 levs per euro compared with the country’s fixed rate of 1.95583. The statement, published by Standart daily, came as a surprise and broke a central bank policy of keeping silent as to whether the lev is undervalued or overvalued. A government source, who refused to be identified, called it a «gaffe.» The bank’s press office first confirmed Kostov’s statement but later denied it. It said Kostov told the newspaper in an interview that the bank’s forex reserves were double the amount of money in circulation, but did not mention what the real exchange rate was. «The rest are interpretations made by Standart,» a bank spokesman said. Standart said the full text of the interview would be published today. Under the currency board regime which Bulgaria adopted to tame hyperinflation after a 1996/97 financial crisis wiped out a third of the country’s banks, the amount of national currency in circulation must be exactly matched by the central bank’s hard currency reserves. Valuing the lev stronger than its official peg to the euro is at odds with recent comments from some economists who say the country could be forced to devalue the unit to avoid a crash landing. Analysts say Bulgaria’s ballooning current account deficit and hefty foreign borrowing in the private sector have made the country vulnerable to the global credit crunch and could put pressure on the central bank to let go of its currency board regime or devalue the lev/euro peg.