Romania’s currency weakened to a record low after the central bank signaled it will allow the leu more flexibility, a move a policy maker said is likely to curb a recent jump in foreign-currency loans.
(Bloomberg) — Romania’s currency weakened to a record low after the central bank signaled it will allow the leu more flexibility, a move a policy maker said is likely to curb a recent jump in foreign-currency loans.
The leu weakened for a fifth straight day, the longest slump since March, and touched an all-time low of 4.9816 against the euro on Friday before narrowing losses. It’s been on the back-foot since the central bank a week ago gave the closely-managed currency more flexibility and indicated the trading range may shift.
Further gradual losses may be in store after the leu weakened about 1% since central bank Governor Mugur Isarescu’s comments last week, according to Ciprian Dascalu, a Bucharest-based economist at Erste Group Bank AG.
“The central bank signaled its discomfort with the leu’s previous strengthening bias by allowing excess liquidity to persist in the market to discourage carry trades,” Dascalu said. “We see it falling as low as 5.05 per euro by the end of the year.”
The fallout should be a warning to borrowers turning to foreign-currency loans, according to central bank board member Cristian Popa.
With Romania’s key interest rate set at 7%, the highest in more than a decade, companies have rushed toward cheaper loans in other currencies. Foreign-currency lending to firms increased by 46% in March, compared with a year ago, according to the central bank, which called the dynamics “particularly high.”
“Companies should become more aware that the FX risk exists and consider it when they decide to take FX loans,” Popa said by phone on Thursday.
The east European nation had seen a drop in euro-denominated mortgages and private lending to consumers in recent years after the central bank tightened rules to prevent a repetition of previous financial woes. Over the past two decades, Romania and its neighbors struggled with bouts of excessive borrowing in foreign currencies.
(Updates with leu in second paragraph)
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