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Romania Leu Heads for Two-Month Low on Elections-Led Instability

Romania’s leu headed for the weakest in more than two months as concern over political instability from elections outweighed the central bank’s decision to support the currency by capping funding for lenders.

The leu depreciated 0.1 percent to 4.5815 per euro at 5 p.m. in Bucharest, the lowest on a closing basis since Aug. 3, according to data compiled by Bloomberg. Yields on 2018 euro-denominated bonds rose four basis points, or 0.04 percentage point, to 4.15 percent.

Campaigning for Romania’s parliamentary elections begins a month before polling on Dec. 9. The nation may face renewed political turmoil as the governing coalition backing Prime Minister Victor Ponta goes head-to-head with the opposition party, which supports President Traian Basescu. A Constitutional Court invalidated an impeachment vote on the president due to lower-than-required turnout, leading to Basescu’s reinstatement in August.

“Romanian assets continue struggling into December elections,” analysts led by Benoit Anne at Societe Generale SA wrote in a note today. “The political environment remains unfavorable” for the leu, they said.

The central bank capped lending at its one-week repurchase agreements auction to 6 billion lei ($1.7 billion) on Oct. 8 and Oct. 15 to support the leu, which had weakened to a two-month low on Oct. 5. Lenders demand for funding reached a record high of 21.4 billion lei at the mid-month sale.

The repo cap “is the way to move more rapidly and effectively than regular interest-rate changes,” and the impact on the exchange rate is “more effective,” Governor Mugur Isarescu said yesterday.

“We read this as suggesting stronger actions for supporting the leu are not on the near-term radar,” Mihai Tantaru, a Bucharest-based economist at ING Bank Romania, wrote in a note today.

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