The leu retreated from an eight-month high after Romania’s central bank signaled it may relax a three-month old cap on leu sales at its weekly repurchase agreements auctions.
The currency weakened less than 0.1 percent to 4.4066 per euro by 4:55 p.m. in Bucharest, after strengthening to its highest level since May 4 yesterday, according to data compiled by Bloomberg. Yields on Romania’s June 2016 euro-denominated bonds rose four basis points, or 0.04 percentage point, to 3.09 percent.
The Banca Nationala a Romaniei held its benchmark rate at a record low of 5.25 percent yesterday, the second-highest in the European Union after Hungary. The central bank, which has capped leu sales since October to prop up the currency, said it will seek “to ensure an adequate liquidity management” at its monetary policy committee meeting.
“The central bank removed the term ‘firm liquidity management’ introduced in the previous statement,” Vlad Muscalu, a Bucharest-based economist at ING Bank Romania SA wrote in a note. “The adjustment suggests the bank will soon soften its repo cap, raise or abandon it. Hinting at easing liquidity conditions was definitely not expected.”
Policy makers extended a 4 billion-lei ($1.2 billion) limit on repo sales for a seventh week, after first capping the amount at 6 billion lei on Oct. 8 when the leu had sunk to its two-month low. Demand for leu from commercial banks totaled 24.9 billion lei at the auction yesterday.