Romanian Leu Weakens 2nd Day After Central Bank Lifts Repo Cap

The leu weakened for a second day after Romania’s central bank lifted a cap on the size of its weekly repurchase agreement auctions, increasing the supply of the currency to commercial banks.

The leu slid the most in a week as the Banca Nationala a Romaniei increased the limit to 10 billion lei ($3 billion) yesterday, from 9 billion lei a week earlier on record demand at 38.5 billion lei. That is the largest amount the central bank has put up for sale at a repo auction since October. Romania’s interest rate remained unchanged at a record low 5.25 percent, matching the estimates of all 19 economists surveyed by Bloomberg.

The leu’s decline is “augmented by the central bank’s loosening liquidity by hiking the repo cap,” analysts at Bucharest-based BRD-Groupe Societe Generale (BRD) SA wrote in a note today.

Romania’s currency depreciated as much as 0.3 percent against the euro, the most on an intraday basis since Jan. 28, before paring its loss to 0.1 percent at 4.3779 by 5:10 p.m. in Bucharest. The leu has gained 3.5 percent in the past two months. Yields on euro-denominated bonds due 2019 declined two basis points, or 0.02 percentage points, to 4.208 percent.

The Finance Ministry raised 500 million lei in one-year bills and 737 million lei in three-year bonds yesterday. Demand declined to 857 million lei from 2.9 billion lei at a previous sale of the three-year bonds on Jan. 14, according to the central bank’s data. Yields fell to 5.51 percent for T-bills and to 5.69 percent for the notes.

“Contrary to our expectations, local bond inflows were much weaker than previous tenders on risk-off sentiment,” the BRD analysts 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