Romanian Leu Strengthens After Central Bank Squeezes Liquidity

Romania’s leu strengthened to the highest in two weeks after the central bank unexpectedly lowered the size of its weekly repurchase agreements auction, reducing the supply of currency to commercial banks.

The leu extended its gain this year after Banca Nationala a Romaniei, which has a managed-float policy for the currency, tightened a cap on repos to 9 billion lei ($2.7 billion) yesterday from 11 billion lei a week earlier. Romania’s inflation quickened to 6 percent in January, beating the 5.4 percent median estimate of 15 economists surveyed by Bloomberg.

“The central bank unexpectedly cut the volume of liquidity provided to banks and this might suggest the bank is not comfortable with leu above 4.4 per euro due to inflationary concerns,” analysts at Vienna-based Erste Group Bank AG wrote in a note today.

The leu appreciated 0.3 percent to 4.3755 per euro by 4:50 p.m. in Bucharest, the highest on a closing basis since Feb. 4. Tofay’s gain brought the leu’s rise this year to 1.7 percent.

The central bank started limiting the size of its currency sales on Oct. 8 and has cut supply to as low as 4 billion lei to support the leu.

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