The leu could continue to depreciate slightly against the euro in the coming period, driven by the significant inflation differential between Romania and the eurozone; however, it is more likely to retain its "investment-grade" sovereign rating than to be downgraded by S&P, Adrian Codirlasu, president of the CFA Romania Association, told AGERPRES on Friday.
"The exchange rate depreciated by 1.27%. On international markets, a 1% single-day currency depreciation is normal. We had become accustomed to low volatility. At CFA Romania, we point out the significant inflation differential between Romania and the Eurozone. Naturally, over the medium and long term, this leads to a certain depreciation of the leu against the euroa trend observed prior to the war in Ukraine and one that has resumed since last year. Therefore, we should expect a slight depreciation of the leu in the period ahead," explained Adrian Codirlasu.
The leu depreciated significantly against the euro on Friday; the European currency was set by the National Bank of Romania (BNR) at 5.3447 lei, an increase of 6.7 bani (+1.27%) compared to the previous rate of 5.2777 lei. The euro thus reached a new all-time high against the national currency.
Regarding the decision by the rating agency S&P, Codirlasu stated that there is a greater likelihood of Romania retaining its investment-grade rating.
"I believe we have a better chance of maintaining our rating than being downgraded. However, a downgrade risk does exist. The risk is significant, and the S&P report could be more negative than last year's; nevertheless, there is a possibility they will keep us at investment-grade status. What would secure our investment-grade ratingif indeed it is maintainedis the current government's performance in reducing the budget deficit. In fact, the government has delivered more than promised in this regard. Given the reduction in the budget deficit, it would be quite difficult to justify a rating downgrade. On the other hand, a rating looks to the futurespecifically, the next 12 months. The main uncertainty concerns the reversibility of these measures to keep the budget deficit under control. If we revert to a fiscal policy of increasing spending, the deficit, and debt, then, unfortunately, we will be downgraded. So, essentially, it comes down to current performance versus future uncertainties," added Adrian Codirlasu.
International credit rating agency Standard & Poor's (S&P) is publishing its report on Romania's sovereign rating on Fridayagainst a backdrop of political uncertainty and fiscal consolidation effortswith the report expected to offer a fresh perspective on the state of public finances and the country's ability to maintain its investment-grade rating.
Romania currently holds a "BBB-" rating from S&P Ratingsthe lowest investment-grade tierwith a negative outlook.
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