Leu Gains as Romania’s Inflation Quickens More Than Forecast

The leu strengthened as Romanian inflation quickened more than forecast in September, fueling bets the central bank may tighten its monetary policy stance.

The currency gained 0.2 percent to 4.5688 per euro at 5:35 p.m. in Bucharest, after weakening 0.2 percent yesterday, according to data compiled by Bloomberg. Yields on 2018 euro-denominated bonds fell two basis points, or 0.02 percentage points, to a record low of 4.59 percent.

The inflation rate rose to 5.3 percent in September as food and energy prices climbed. The median estimate of 13 economists surveyed by Bloomberg was 4.7 percent, according to data compiled by Bloomberg. Romania’s central bank capped lending at its one-week repo auction to 6 billion lei ($1.7 billion) on Oct. 8, after providing funding in line with bids since Sept. 3, to support the leu.

The inflation rate surpassing the market consensus “may have underpinned some leu firming,” Mihai Tantaru, a Bucharest-based economist at ING Bank Romania, wrote in a note today. “Market participants are possibly pricing in a more restrictive stance for the central bank in the near run.”

The last time Banca Nationala a Romaniei stemmed repo lending was on Aug. 6 and it followed through with lower limits for the rest of the month, which in turn led to the currency gaining 2.6 percent in August.

The leu weakened 0.4 percent on Oct. 5 -- a day before the decision to limit funding -- to the lowest in more than two months.

“We still expect the depreciation trend to continue, possibly past 4.60 per euro in the coming weeks, but the weakening could slow a bit given the recent inflation surprise,” Tantaru said.

The central bank’s target for inflation in 2012 ranges from 2 percent to 4 percent. The next interest rate-setting meeting is scheduled for Nov. 2.

The bank shouldn’t be in a hurry to increase interest rates as the surprise pickup in inflation is temporary, Lucian Croitoru, a monetary policy adviser to Governor Mugur Isarescu, said in an interview today.

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