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Leu Defies Worldwide Selloff on Bets Romanian Central Bank Will Intervene
Romania’s leu gained for a second day, defying declines in global assets on speculation the central bank will increase interest rates to tame inflation and buy the currency to protect loans in euros.
The leu strengthened 0.5 percent to 4.3424 per euro as of 6:23 p.m. in Bucharest, the only gainer among 25 emerging-market currencies tracked by Bloomberg and the biggest advance among more than 170 global currencies. It fell to its weakest against the euro on record on June 28.
The Bucharest-based central bank said it would act to limit the effects of a hike in Romania’s value-added tax and “firmly anchor inflation expectations at low levels” while seeking to “avoid excessive exchange rate volatility.” The VAT, which was increased to 24 percent from 19 percent on June 26 to plug a budget hole, would “immediately trigger” a surge in inflation, the policymaker said yesterday.
“Given inflationary risks, the National Bank of Romania turned hawkish,” Vlad Muscalu, an economist at ING Groep NV in Bucharest, wrote in a report today. “The probability of a key rate hike before the end of 2010 is higher and higher.”
The Hungarian forint, the world’s worst-performing currency in the second quarter, and Poland’s zloty weakened 0.9 percent against the euro today as riskier assets tumbled worldwide after manufacturing growth in China and U.S. home sales missed forecasts and Moody’s Investors Service said it may cut Spain’s credit rating.
Intervention
Hungarian, Polish and Romanian central banks may buy their currencies to stop further selloffs because a large share of loans are denominated in euros or Swiss francs, Copenhagen-based analysts at Nordea Bank AB wrote in a report on June 29.
The Romanian policymaker’s statement on currency volatility “basically says they may not allow too much leu weakening from current levels,” Muscalu said in the ING report. “Given the volume of forex reserves and volumes on local spot market, the NBR may easily cap the pair if it wants to do so.”
To contact the reporters on this story: Krystof Chamonikolas in Prague at kchamonikola@bloomberg.net; Irina Savu in Bucharest at isavu@bloomberg.net
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