Romanian Leu: New government supports leu stability, upside capped – ING

ING strategist Frantisek Taborsky says Romania’s emerging political breakthrough should reduce near-term pressure on the Leu and lower rating risks, but notes a difficult economic backdrop after fiscal tightening. He expects the new government to stabilise EUR/RON around 5.340, with bonds supported by consolidation efforts, though stretched valuations and limited upside constrain further rallies.

Political deal anchors leu but caps gains

"Romania appears closer to ending five months of political deadlock after the Social Democrats agreed to join premier-designate Luca Niculescu’s cabinet with 11 ministers. The Liberals and UDMR will not enter government but have pledged parliamentary support for six months, likely giving Niculescu the majority needed for approval. The cabinet is also expected to include technocrats in finance, energy and foreign affairs."

"This is Niculescu’s fourth attempt by President Nicușor Dan to install a prime minister since May, after the previous coalition collapsed and previous nominees failed. A government should reduce near-term pressure on the leu and lower the risk of Romania losing its investment-grade rating."

"However, the economic backdrop remains difficult after last year’s fiscal tightening pushed activity into prolonged stagnation. Failure to secure parliament’s backing could force an early election, which the president has sought to avoid. If approved, Niculescu’s immediate priorities will be revising the 2026 budget, preparing the 2027 draft and continuing fiscal consolidation. Overall, the political breakthrough is positive for RON, but implementation and the credibility of deficit reduction will remain key."

"As previously discussed, we do not expect RON to rally on political headlines, though the new government should help stabilise EUR/RON around 5.340 and limit further upside. Bonds have already seen a solid rally in recent days, with spreads against CEE peers narrowing to record levels. The new government and budget discussions pointing to further consolidation should sustain positive sentiment in the bond market as well, but stretched valuations limit further rallies there."

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