September 16, 2015 / 5:11 PM / 5 years ago

UPDATE 1-Moldova PM asks central bank to support faltering leu currency

(Alexander Tanas)

CHISINAU, Sept 16 (Reuters) - Moldovan Prime Minister Valeriu Strelet called on the central bank on Wednesday to take “all necessary measures” to support the national leu currency, which has hit seven-month lows against the dollar due to a banking crisis.

Angered by fraud in which $1 billion - roughly one-eighth of the country’s gross domestic product - disappeared from the banking system, Moldovans last week staged the largest protests the poor, largely rural, ex-Soviet republic has seen.

The crisis has hit the leu, which is trading around 60 percent lower against the dollar than it was a year ago.

“The central bank must take all necessary measures to keep the situation under control and to prevent sharp depreciation of the Moldovan leu,” Strelet said at a government meeting

“I very much hope that the situation on the currency market will change after Oct. 6, when we expect to sign a memorandum of understanding with the IMF,” he said.

The official rate stood at 19.58 lei to the dollar on Wednesday, slightly weaker than the previous day. But real rates have depreciated to 20.5 to the dollar and 22.5 to the euro, EuroCreditBank trader Viorel Molosniuc said.

“Lei are coming onto the market from deposits which people are withdrawing from the three problem banks ... from where the $1 billion was stolen,” he said.

“The population aren’t interested in the 17.5 percent interest rates offered by banks for lei deposits. They’re buying currency and opening euro or dollar accounts at 2 percent rates,” he said.

In August the central bank raised its main interest rate to 19.5 percent from 17.5 percent, its sixth increase since the start of 2015. It has also repeatedly raised the rate on overnight loans, overnight deposits and bank reserve requirements.

Along with other former Soviet republics, Moldova has also been hit by an economic downturn in Russia, a key trading partner, triggered by the Ukraine crisis and a plunge in oil prices. (Writing by Alessandra Prentice; Editing by Catherine Evans and Hugh Lawson)

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