Thursday, March 24, 2011

Leu Extends World’s Best Rally as Romania Fights Inflation

March 23 (Bloomberg) -- The leu extended the biggest rally among the world’s currencies in 2011 to the strongest in a year after a Romanian policy maker signaled the central bank may allow further gains in an attempt to control inflation.

The currency appreciated as much as 0.7 percent to 4.0994 per euro, its strongest intraday level since April 8, and traded at 4.1044 as of 7:30 p.m. in Bucharest, its fifth day of gains.

The leu’s rally is “market-driven and broadly in line with economic fundamentals” and may “anchor inflation expectations stemming from increases in the world price of oil and fuels,” central bank Deputy Governor Cristian Popa told Bloomberg today. Inflation quickened to 7.6 percent in February from 7 percent a month earlier, the statistics office in Bucharest said March 10.

“Inflation has been a theme across emerging markets for some time” and Popa has given “probably the first sign that the Romanian central bank is joining others in dropping their aversion to appreciation as energy prices rise,” Robert Beange, strategist at RBC Capital Markets in London, wrote in an e-mail.

Policy makers from China to Brazil have been struggling to tame quickening inflation as the global economic recovery and conflict in the Middle East drives up energy prices. Crude oil jumped for a third day today to above $105 a barrel, trading near its highest since 2008.

‘Radical Change’

Romania’s annual price growth topped the 7.4 percent median estimate of analysts polled by Bloomberg. The central bank is concerned about inflation because of surging global food and oil prices, Governor Mugur Isarescu said March 9. The bank last year operated in the currency market to prevent excess liquidity from causing “ample leu moves,” Isarscu said on Jan. 21 interview.

“The central bank is indeed much more comfortable about currency strength given mounting inflation risks” after a “radical change in terms of exchange-rate policy,” Benoit Anne and Guillaume Salomon, emerging-market strategists at Societe Generale SA in London, wrote in a research note earlier today.

The leu may advance to 4.05 per euro, its strongest since January 2009, compared with SocGen’s earlier forecast of 4.1 per euro, according to the report. “There are now clear risks that the leu may appreciate further than we initially thought,” Anne and Salomon wrote.

A 4.3 percent rally against the euro and a 10 percent gain versus the dollar make the leu the best performer so far this year among more than 170 currencies tracked by Bloomberg.

Romania’s currency may extend its gains “for a while, as oil is likely to continue higher,” RBC’s Beange wrote in response to questions from Bloomberg News.

--Editors: Alexander Nicholson, Gavin Serkin

To contact the reporters on this story: Krystof Chamonikolas in Prague at kchamonikola@bloomberg.net; Irina Savu in Bucharest at isavu@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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