Commerzbank’s Tatha Ghose highlights a sharp rise in Leu volatility after Romania’s government lost a no-confidence vote, leaving Prime Minister Ilie Bolojan as caretaker. The pro‑EU coalition’s collapse clouds prospects for fiscal consolidation and EU funds. With a managed float and limited foreign participation, EUR/RON typically moves little, but high-profile crises like this can trigger pronounced swings.

Managed float tested by government collapse

"Romania’s currency, the leu, experienced significant volatility this past week as the government faced a no-confidence vote, and lost this vote yesterday. Prime Minister Ilie Bolojan’s coalition government is now history. The vote came just ten months after Bolojan formed a four-party alliance to counter the rising far-right."

"The outgoing coalition was pro-EU, and was implementing fiscal austerity, heading towards a direction of unlocking EU funds – this endeavour clashed with vested political interests domestically and finally, failed. This puts a big question mark over the feasibility of fiscal consolidation, reforms or access to EU funds for Romania in the medium-term."

"Uncertainties will continue for now, hence RON volatility may take a while to calm down. Usually there are few incidents which rock this currency in this manner because it is a managed FX regime. At the same time, the currency enjoys limited international investor participation, base-case of which the central bank can maintain its tight grip. EUR/RON becomes volatile only during high-profile crises, but this happens to be one of those times."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)