Isarescu: Leu's Rise Vs Euro Difficult To Cap

04.20.2011 By Florentina Dragu

Romanian central bank has trouble paring down the leu’s appreciation against the euro, as interest rates are already low and buying euros would create liquidity surplus in the market, governor Mugur Isarescu said Wednesday.

Romanian central bank has trouble paring down the leu's appreciation against the euro, as interest rates are already low and buying euros would create liquidity surplus in the market, governor Mugur Isarescu said Wednesday.

"I've just looked at the monitors and the interests are dropping below 2% a year. I wonder why they would fall below the central bank's rate of 2.25% a year (paid for the deposit facility - e.n.), while the exchange rate is strengthening," Isarescu said.

Since January, the leu has gained 4.5% versus the euro, hitting a nearly 13-month high of 4.0869 units on Tuesday.

According to Isarescu, the central bank would have to start buying euros to prevent the leu from strengthening too much, but the move could trigger excess liquidity in the market and would put further pressure on interests.

"There's excess liquidity everywhere in the world. The best examples are the markets in Turkey and Brazil, but Russia experiences increasing inflows as well," Isarescu said.