Romania’s leu declined to the lowest level on record as concern deepened the political turmoil will derail pledges to international lenders and Germany expressed concern over government efforts to sideline the country’s high court and oust the president.
Romania’s currency depreciated as much as 0.5 percent to the lowest intraday level on record of 4.5633 per euro and traded at 4.5618 as of 1:10 p.m. in Bucharest. The leu has dropped 2.5 percent against the euro this month, the worst performance among 27 emerging-market currencies tracked by Bloomberg.
The leu is headed for its second weekly decline after a power struggle between President Traian Basescu and Prime Minister Victor Ponta led to Basescu’s suspension on July 6. Germany summoned the Balkan nation’s ambassador in Berlin to express Chancellor Angela Merkel’s “great concern” over the efforts by Ponta’s government “to curtail the jurisdiction of the constitutional court,” the country’s chancellery said in a statement yesterday.
Romania is at risk of the government facing increased pressure to relax fiscal policy, the International Monetary Fund said July 2. Romania pledged to cut a budget deficit to below 3 percent of the economic output by the end of this year, under a 5 billion euros ($6.1 billion) precautionary accord with lenders signed last year as a safeguard against European debt crisis. A review of Romania’s progress under the accord is set to start as early as July 24, according to the Finance Ministry.
Romania’s central bank Governor Mugur Isarescu, who may buy and sell the leu to control swings in the currency, said yesterday that the bank has limited room to prop up the currency because a “massive sale” of funds would siphon off foreign-exchange reserves too much amid foreign capital inflows.