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Monday, January 14, 2008

The Leu Slides Again

The Romanian leu fell for a second day against the euro today, dropping to its lowest level in three years, after a report showed the government's budget deficit widened. The shortfall in the country's budget stretched to 2.4 percent of gross domestic product last year, from 1.7 percent in 2006, Ziarul Financiar reported, citing unnamed government sources. A record trade gap of 2.2 billion euros ($3.3 billion) in November and October underpinned views the leu is being hurt by weak macroeconomic data.

The Romanian currency fell as much as 0.8 percent to 3.7235 per euro, its lowest since February 2005, and was at 3.7126 by 12:26 a.m. in Bucharest. The leu is the worst performer among a group of 26 emerging market currencies so far this year, dropping 3.4 percent.

The Bucharest-based central bank raised its interest rate 50 basis points on Jan. 7, to 8 percent, as inflation quickened to 6.7 percent in November and 6.6 percent in December, exceeding the bank's year-end target of 4 percent, plus or minus one percentage point.

And to top it all, Romania's current-account deficit widened to 13.3 billion euros in October, another record.

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