The central bank sees no threats to the fixed exchange rate regime and is firmly committed to follow the strategy for quick adoption of the euro without any adjustments to the present exchange rate peg, bank officials said in regard to the presidential economic report. Kalin Hristov, economic advisor to the central bank governor, told us yesterday that he was assured by the editors of the presidential report that the currency peg to the euro was not considered a risk factor despite the widening CA deficit. On the same note, the statement of foreign minister Ivailo Kalfin that the real exchange rate appreciation is pressuring the country's external balance is not directly referring to the presidential report and according to Hristov is not meant to put any doubts on the sustainability of the nominal exchange rate anchor. As recalled, the central bank strategy for adopting the euro is supported by the government and projects that the country will switch to the single European currency two to three years after joining the EU.

IntelliNews comment:

We think that the large CA deficit of around 15% of GDP last year and unclear pre-election statements from the senior ruling partner BSP have slightly eroded the public confidence in the local currency that could become a serious risk factor in future. At this stage, the foreign reserves at the central bank provide a solid coverage of the fixed exchange rate and the foreign debt accumulation in the private sector is roughly offset by government debt repayments and the overall economic growth. However, a sudden withdrawal of external portfolio investors or other short-term assets kept by non-residents could seriously challenge the net external position. In view of the EU sentiments, we do not expect such a negative scenario but nevertheless we cannot fully exclude exchange risks. In this situation, we fully appreciate the firm commitments to the exchange rate peg coming from the central bank and the presidency.