Romanian Leu Retreats as Companies, Citizens Cover Euro Loans

Romania’s leu retreated after posting the biggest gain among eastern European currencies in December as companies took advantage of a cheaper euro to cover their foreign-currency needs.

The leu dropped 0.3 percent to 4.4189 per euro by 5 a.m. in Bucharest. The currency strengthened 0.9 percent yesterday, reaching the highest since May, with local markets closed for New Year holidays.

“With local markets closed, the relatively large volumes on which the leu was traded yesterday were provided almost entirely by foreign players,” Mihai Tantaru, an economist at ING Bank Romania SA in Bucharest, said in a note today. “The leu failed to hold on to gains and we think the potential commercial demand for hard currency will provide a headwind for any significant leu advance.”

The leu gained 1.5 percent last month, the third-best performer among emerging-market currencies tracked by Bloomberg in the period. Romanian companies and citizens are buying the single currency to benefit from that appreciation as they seek to cover their loan repayments in euros. About 63 percent of private loans are in foreign currencies, according to central bank data.

“The stronger leu is great news” for companies and citizens with loan repayments in euros, Prime Minister Victor Ponta said Dec. 27.

Yields on Romania’s 2016 euro-denominated bonds declined two basis points, or 0.02 percentage point to a record low 2.92 percent today, according to data compiled by Bloomberg.

Stability Accord

Investors’ appetite for Romanian assets increased after political uncertainties eased last month as Ponta was appointed for a second mandate and his new government won a confidence vote in parliament on Dec. 21. Ponta is counting on a two-thirds majority in the legislature to pass a 2013 budget and start talks with the International Monetary Fund and the European Union in January to renew the nation’s stability accord.

A joint mission of the international lenders will visit Romania between Jan. 15 to Jan. 29 to conduct the seventh and the eight reviews of the country’s current 5 billion euros ($6.6 billion) precautionary accord and discuss the details of this year’s budget, the IMF said today.

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