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Romania May Cut Rates Again, Allow Weaker Leu, BNP Paribas Says

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Nov. 3 (Bloomberg) -- Romania, which unexpectedly cut funding costs yesterday, may ease monetary conditions further and allow the leu to weaken to an all-time low to boost exports and economic growth, according to BNP Paribas SA.

The National Bank of Romania may reduce its main interest rate to 5.75 percent from 6 percent at its next policy meeting in January and let the currency retreat to 4.50 per euro in the next half-year, emerging-market strategists at BNP Paribas led by London-based Bartosz Pawlowski wrote in a report today.

Policy makers yesterday lowered the monetary-policy rate to a record-low from 6.25 percent as the slowest inflation in two decades gave them room to spark an economic recovery. Consumer-price growth will probably remain inside the target band between 2 percent and 4 percent in 2011 and 2012, the central bank said.

“The NBR is showing growing tolerance towards a weaker leu, despite intermittent currency interventions to smooth the decline,” Pawlowski said. “Tight fiscal conditions as well as slowing exports and growth could see officials in Romania allowing euro-leu to approach 4.50 over the next six months.”

The Romanian currency has lost 5.8 percent against the euro in the past six months. It weakened 0.4 percent today to 4.3620 per euro by 1 p.m. in Bucharest, trading near this year’s intraday low of 4.3766, reached a month ago.

To contact the reporter on this story: Krystof Chamonikolas in Prague at kchamonikola@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net