By Anna Willard
PRAGUE, April 4 (Reuters) - Romania's central bank is reassured by that the leu has strengthened slightly since the announcement of an aid package but still reserves the right to intervene, Deputy Governor Cristian Popa said on Saturday.
In an interview he also said the currency moves and a fall in CDS spreads pointed to an improved risk evaluation by investors for Romania.
Romania reached a deal with the International Monetary Fund and the European Union and other financial institutions on March 25 to secure 20 billion euros in aid.
The currency rose last week from January's record lows against the euro following the news.
"I think it (the leu) has reflected positively about the news of the IMF package and I'm more reassured not just by movements in the currencies but by the downward trend in CDS spreads," Popa said.
"The big change in direction is I think indicative of a better risk valuation for Romania."
However, many analysts say currency concerns are still acute and predict further leu weakening as Romania struggles to cope with the global financial crisis.
Financial market observers say the central bank has repeatedly intervened in recent months to help the battered currency and Popa did not rule out further intervention.
"It is essentially market determined and we reserve the right to intervene especially to smooth out extremely significant elements of volatility but it still has to be determined by the market," he said.
"I'm not commenting on whether we will or not."
The IMF package assumes an economic contraction of 4 percent this year, a figure that Popa said was too pessimistic.
"We are thinking of something closer to -1.5 percent," he said.
The shrinking economy would lead to a large budget deficit, he said.
"I think at this point in time we're talking about the fiscal deficit of this year of about 4.6 percent which seems to be comparable with the need to consolidate given the slowing down of the economy that is quite marked."
He said the aim was to bring the deficit under the European Union limit of 3 percent "in about a couple of years time".
Popa said the aid package was sufficient in size.
"I think the amount is large enough that it would consolidate reserves in a marginal fashion at the end of the programme," he said.
(Editing by Ron Askew)