Leu eases as central bank highlights risks, crown sets new highs

BUDAPEST/PRAGUE: The leu resumed last week's fall on Monday as Romania's central bank highlighted risks from the government's budget plans and a surge in domestic wages without signalling monetary tightening. Manufacturing figures showing continuing growth in central Europe, meanwhile, failed to give a lasting lift to currencies in the region. Romania's central bank kept interest rates on hold at record lows at its meeting, as expected. Governor Mugur Isarescu said inflation could run slightly higher than expected, adding the bank was alert to risks from the budget of new Prime Minister Mihai Tudose's government. The government's plans to overhaul taxes have given new fuel to worries over a likely rise in the budget deficit and inflation. The leu had fallen more than a third of a percent against the euro to 4.575 by 1342 GMT. "Uncertainties will continue to dominate the landscape," Erste analysts said in a note, adding the central bank may start to lift interest rates late this year. It did not signal a hike on Monday. Poland's central bank is not expected to change rates either at its meeting on Wednesday. Analysts in a Reuters poll projected its first hike could come only in the last quarter of 2018. They projected the third quarter a month ago, and the third quarter two months ago. The zloty eased 0.3 percent to 4.2425 per euro. "It weakened a little after (the June) PMI (Purchasing Managers' Index), which was slightly lower than we expected," said ING BSK analyst Jakub Rybacki. Regional PMI data showed economic growth continuing, even though Poland's 53.1 and the Czech Republic's 56.4 readings were a bit lower than expected. The only monetary authority in the region that has signalled monetary tightening may be near - after many years of loose policy - is the Czech central bank (CNB). The Czech crown, trading at 26.089 against the euro early on Monday, touched its strongest level since the CNB three months ago removed a cap that had kept the currency weaker than 27 for three and a half years. It had retreated to 26.128 by 1342 GMT. The crown could continue to strengthen to 26 or even beyond, boosted by investors who sold tens of billions of euros to the CNB before the removal of the cap, betting on a crown surge, one Prague-based dealer said. "The question is where the long-term (euro) short-betters have their target value," the dealer said.