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Romanian Leu Falls 1st Day in 3 Before Local Bond Sale Tomorrow

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March 6 (Bloomberg) -- The leu weakened for the first time in three days ahead of the first local debt sale since three Romanian local bonds entered JPMorgan & Chase & Co.’s emerging-market bond index.

The leu pared the second-best advance this year among eastern European, Middle Eastern and African peers tracked by Bloomberg as JPMorgan said in a report yesterday extra demand for Romanian debt amid index inclusion will be limited. Investors have already boosted their holding of Romanian bonds by $3.5 billion through January, the U.S. bank said, citing Ministry of Finance data. The central bank scrapped a limit on the size of its weekly repurchase auctions on March 4, almost five months after imposing the cap, increasing money supply to commercial banks.

“Injecting unlimited liquidity is a sign of transparency and could accelerate the decline in short-term rates and yields,” Ana-Maria Morarescu, a Bucharest-based economist at Raiffeisen Bank Romania SA wrote in a note today. “Over the short-run this might bode well for the leu, but the limited downside potential of yields in the absence of a key rate cut could reduce non-residents’ appetite for Romanian bonds and weaken support for the leu.”

The leu depreciated as much as 0.2 percent and traded less than 0.1 percent weaker at 4.3576 per euro by 4:50 p.m. in Bucharest, cutting its gain this year to 2.1 percent, according to data compiled by Bloomberg.

The Banca Nationala a Romaniei lent 7.3 billion lei ($2.2 billion), matching the banks’ bids at its weekly currency sale earlier this week. The central bank, which has a managed-float policy for the currency, has restricted repurchase agreement operations since Oct. 8. The bank kept its key rate unchanged at a record low of 5.25 percent during its seventh monetary policy meeting on Feb. 5.

The Finance Ministry plans to raise 500 million lei in a sale of January 2016 bonds tomorrow. The debt on auction is among the three fixed-income securities included in the JPMorgan index from March 1. The country last issued 398 million lei in 2016 bonds on Feb. 14 at an average yield of 5.73 percent.

To contact the reporter on this story: Andra Timu in Bucharest at atimu@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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