Briefing Romania

The market didn’t wait too long to test the upside potential of the EUR/RON. The above-consensus February inflation data and low carry fuelled selling in the Romanian leu, predominantly in the second part of the trading session. A particularly weak trading balance added fuel to the fire. We are now around historical highs and it will be interesting to see if the central bank remains comfortable with these levels, given that it didn’t intervene to mop up the surplus liquidity from the money market. We tend to believe that a line in the sand will be reinforced.

Bond market sentiment turned negative yesterday after CPI inflation surpassed expectations. By the end of the day, the curve shifted anywhere from 5 to 15 basis points higher, with the mid- and back-end taking most of the hit. For now, the low funding rates provide some protection for the front-end.

Funding rates remain below the National Bank of Romania's 1.50% deposit facility but the rest of the curve felt the winds of change in inflation and shifted c.15-20 basis points higher in a quasi-parallel move. It might be too late though to see a meaningful change in the current reserve period funding rates.