Romanian Leu Retreats From One-Month High; Bond Yields Decline

Romania’s leu snapped a four-day rally, retreating from its strongest level in more than a month.

The currency weakened 0.1 percent to 4.5183 per euro by 5:10 p.m. in Bucharest, after strengthening 0.2 percent to the highest since Sept. 24 in intraday trading, according to data compiled by Bloomberg. Yields on 2019 Eurobonds declined five basis points, or 0.05 percentage point, to 4.97 percent.

Governor Mugur Isarescu said on Nov. 2 he is limiting funding at the central bank’s weekly repurchase agreement auctions and intervening in the foreign-exchange market to support the currency. Policy makers may also use other tools should the “pressure on the exchange rate continue,” he said today at a conference in Bucharest.

“The challenge now for the central bank is to maintain an optimal mix between capping liquidity -- so that the money market rates do not increase dramatically -- and the intervention in the foreign-exchange market,” analysts including Bucharest-based Mihaela Neagu from OTP Bank Nyrt. wrote in a note today.

The central bank maintained a cap on funding to lenders at 4 billion lei ($1.1 billion) on Nov. 5, compared with 5 billion lei it offered on Oct. 22, 6 billion lei on Oct. 8 and 12.6 billion lei on Oct. 1. Demand at the repo auction was 15.6 billion lei.

The relative strength index on euro against the leu fell to 33 yesterday, indicating the leu rallied too far relative to the common European currency. The pair rebounded to 35 today.

“If the pressure on leu by investors’ positions or by other internal and external elements will continue then we may have to take other measures” to prop up the currency, Isarescu said.

To contact the reporters on this story: Andra Timu in Bucharest at atimu@bloomberg.net Irina Savu in Bucharest at isavu@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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