Tuesday, October 4, 2011

Romanian Central Bank Said to Sell Euros to Prop Currency

By Irina Savu and Andra Timu

Oct. 3 (Bloomberg) -- The Romanian leu rebounded from its weakest in 15 months against the euro, raising speculation the country’s central bank sold euros to support the currency.

The leu gained as much as 1.4 percent, its biggest intraday advance since January 2009, and traded 1.1 percent stronger at 4.3130 per euro as of 5:11 p.m. in Bucharest today, after the central bank sold euros through two banks, said three traders from Bucharest-based banks, who declined to be identified because of company policy. Central bank spokesman Mugur Stet declined to comment when contacted by phone.

Romania’s central bank, which has a managed leu floating policy, probably sold euros to damp inflationary pressures stemming from a weaker local currency and protect leu-earning citizens, who hold about 60 percent of total mortgages in the common currency, the traders and Nordea Bank AB’s Elisabeth Andreew said today.

“There have been rumors that the central bank may come in around the 4.35 level and in the absence of other news, maybe the central bank has been there,” Andreew said. “Foreign- exchange loans are one problem and maybe they’re also afraid of rising inflationary pressure again.”

Eastern European central banks are seeking to balance the risks of slower growth in western Europe, the main importer of eastern goods, and weaker currencies as investors cut exposure to emerging-market assets.

Polish Sales

Poland’s central bank sold currencies for the second consecutive day to bolster the zloty as the bank moved to prop up the currency for the first time in at least a decade on Sept. 23 and stepped onto the market again a week later.

The currency sales came after Governor Marek Belka warned last month that the zloty is getting out of sync with Poland’s “healthy fundamentals,” making it harder for policy makers to control inflation. Central bank officials will meet to set interest rates on Oct. 4-5.

Romanian policy makers have kept interest rates stable since June 2010 as they assess the impact of the global slowdown and fading effect of a tax increase on prices.

The Banca Nationala a Romaniei kept the main rate for an 11th meeting on Sept. 29 at 6.25 percent, the EU’s highest, in a decision that was expected by all 13 economists surveyed by Bloomberg. It also left its minimum reserve requirements on foreign-exchange deposits at 20 percent and the ratio for leu deposits at 15 percent.

--Editors: James M. Gomez, Alan Crosby

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