Romania’s Currency Heads for Biggest Weekly Decline Since July

Romania’s leu headed for its biggest weekly slide since July the central bank increased the funds available to lenders and companies bought more euros.

The leu has pared this year’s advance since the Banca Nationala a Romaniei scrapped a cap on the size of its weekly repo auctions last week and continued with its policy of lending to commercial banks without limits on March 11. Bond yields fell to the lowest on record at an auction yesterday, spurred by extra funding.

The leu was little changed at 4.3933 per euro at 5:10 p.m. in Bucharest, taking this week’s decline to 0.9 percent, the most since July 20. The currency has gained 1.3 percent this year. Yields plunged at an auction of two-year bonds yesterday to 5.18 percent from 5.83 percent on Feb. 11.

“The leu depreciated on corporate flows and some local bond investors taking profit on their positions following the very strong rally,” Dan Bucsa, a London-based economist at UniCredit SpA (UCG), said in an e-mail today. “It is true that leu rates fell abruptly after the repo cap was scrapped, but they were artificially high when the liquidity supply was limited.”

The central bank lent 2.3 billion lei to eight commercial banks at a repo auction this week. It provided 7.3 billion lei at last week’s auction.

Increased bank funding pushed Romania’s interbank offered rate, known as ROBOR, to a three-week low of 1.5 percent, below the central bank’s main interest rate of 5.25 percent.

JPMorgan Indexes

The Finance Ministry raised 500 million lei in a March 7 reopening of January 2016 bonds, the only auction this month of notes added to JPMorgan & Chase & Co.’s benchmark emerging- market debt index. The average yield fell to 5.49 percent from 5.73 percent at a Feb. 14 sale.

JPMorgan is set to include three leu-denominated fixed income securities in its GBI-EM index over three months starting March 1. Extra demand for the country’s debt stemming from the index inclusion will be limited as investors have already boosted their holdings by $3.5 billion through January, the U.S. bank said on March 5.

“Lower leu rates support the leu bonds rally and also cheapen the cost of hedging for investors who prefer to hedge their foreign exchange risk,” according to Bucsa.

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 editors responsible for this story: Balazs Penz at bpenz@bloomberg.net; James M. Gomez at jagomez@bloomberg.net