Romania's currency weakened by another 0.17% versus the euro, and the official exchange rate crossed the benchmark of RON 4.87 RON to EUR. This comes after another 0.1% depreciation in the first day after the Parliament decided to keep the 40% pension hike.

More bad news came on Thursday when the Constitutional Court upheld the law that doubles child allowances on the spot - and not gradually, as planned by the Executive. The move puts additional pressure on the public budget and makes analysts consider the option of a similar decision of the Court in the case of the pension hike. The confidence in the Government's ability to prevent such a scenario is likely to diminish as the case is judged in legal terms - rather than economic terms.

Raiffeisen Bank head economist Ionut Dumitru, former head of the Fiscal Council, stresses that the 40% pension hike is critical for the exchange rate's dynamics. If the increase is avoided somehow, "the local currency should not depreciate that bad," Dumitru says.

An exchange rate correction is necessary, Ziarul Financiar daily commented, judging in terms of external balances. It reiterated a past statement about the realignment timing, which ideally should not coincide with the fiscal consolidation. Both exert social pressures, intermediated by rising prices, higher loan repayment installments, possibly slower wage rise, and higher taxes.

iulian@romania-insider.com

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