July 2 (Bloomberg) -- Romania’s leu remained steady after Moody’s Investors Service cut the outlook on the country’s rating to negative from stable, citing ties with the euro-area amid its sovereign debt crisis.
Romania’s currency weakened as much as 0.2 percent against the euro and last traded less than 0.1 percent lower at 4.4513 per euro at 12:06 p.m. in Bucharest. The country’s central bank has a managed floating policy for the leu.
“The leu moves as much as the central bank allows it to; the limited volatility is nothing new,” Mateusz Szczurek, ING Groep NV’s chief economist for central and eastern Europe, said in a phone interview today. “The fact that another rating agency, Fitch Ratings confirmed Romania’s rating last week helped ease market pressures.”
Moody’s reaffirmed Romania’s local- and foreign-currency government bond rating at Baa3 late on June 29 and changed the credit outlook, saying the country’s trade, investment and financial ties with the European Union are heightening “the economy’s susceptibility to event risk” in the next 12 to 18 months. About 70 percent of Romania’s exports go to the EU, according to data from the National Institute of Statistics. Fitch affirmed Romania’s long-term foreign- and local-currency ratings on June 28.
The eastern European country, whose leu has been the second-worst performing emerging-market currency this year, has had three governments this year and is facing general elections in November or December as the euro-region’s crisis spreads. That helped send the currency to the weakest on record June 11.
‘Weaken in the Future’
“Some of the vulnerabilities mentioned by Moody’s are one reason for which we would expect the exchange rate to weaken in the future,” Szczurek said.
The weaker leu and the domestic political wrangling prompted the Banca Nationala a Romaniei to keep its benchmark rate unchanged for a second meeting on June 27 at a record low of 5.25 percent.
“The main driver that prompted Moody’s decision to change Romania’s rating outlook is the economy’s strong links to the European Union, which could affect growth prospects,” the rating company said. “Relatively” high external debt is the second driver, and “could put pressure on its growth and balance-of-payments position in the event of prolonged volatility in international capital and credit markets.”
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