Romania Ctrl Bk’s Costs To Keep Leu Stable Seen At EUR4.5B Over Past Yr – ING

„We find this cost significant, but at the same time we wish to highlight that some of it was badly needed in order to preserve financial stability and to keep inflation under control,” ING analysts said.

They noted the central bank’s substantial intervention on the financial market should not be seen as an „imminent weakness” of the Romanian currency, as the country benefits from an increased volume of foreign currency reserves.

„The central bank has enough money to control the exchange rate for several years from now if it wants to,” the analysts said.

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Romania’s hard currency market, of around EUR4 billion as a monthly average this year, is not as thick as the ones in Hungary or Poland (EUR13 billion and EUR21 billion, respectively), ING analysts said. In addition, the improved sentiment on international markets bodes well on the leu’s evolution.

ING believes Romania is seeing substantially less speculative trading on the spot hard currency market due to less pressure on the exchange rate at the end of last year.

However, the leu could weaken further, as Romania is starting to repay part of its foreign debt and the payments are likely to be made from the central bank’s reserves as there are no important suppliers of euros on the spot hard currency market.

„Probably the central bank has realized that a stronger leu does not bring benefits for the moment and, maybe, even more the central bank might allow some supplemental leu weakening versus euro as there was no correction in the gap between wages and productivity,” ING report said.