Leu Policy Favors Exchange Stability Over Growth

Key Moments

Exchange Rate Policy and Real Appreciation

Valentin Tataru at ING notes that the National Bank of Romania (NBR) has favored relatively small movements in the EUR/RON exchange rate. This approach has helped to stabilize domestic prices but, over time, has also contributed to a real appreciation of the Romanian Leu.

The Leu has slipped only slightly against the Euro, moving from around 5.00 to 5.34 per Euro. Over the same period, however, wages and other domestic costs have risen more rapidly than those in Romania’s trading partners. According to Tataru, this divergence is raising questions about the currency’s valuation, the country’s competitiveness, and the outlook for the current account in the years ahead.

Managed Float and Policy Trade-offs

Tataru describes the framework guiding the NBR’s strategy toward the Leu:

“The leu formally floats, but the NBR has historically limited large EUR/RON movements. For an import-intensive economy, that policy has clear benefits. A large depreciation would quickly raise the domestic cost of imported goods.”

He details the recent trajectory of the currency, emphasizing that the nominal shift has been modest compared with domestic cost dynamics:

“The euro traded near RON 5.09 in March 2026, around RON 5.23 by May and roughly RON 5.34 by early October – a noticeable weakening of the leu after years of remarkable stability not far from the 5.00 level. Even so, the currency has moved far less than domestic costs.”

Implications for Inflation and Competitiveness

The analysis highlights the policy dilemma facing the central bank as domestic costs outpace those abroad:

“That leaves the NBR facing a genuine trade-off. Allow more nominal depreciation and import additional inflation in the short term, or limit depreciation and accept a gradual deterioration in cost competitiveness when domestic costs rise faster than those of trading partners.”

Romania’s policy stance has leaned toward containing exchange rate moves while accepting higher domestic cost growth.

Strategy Outcome: Stability with Side Effects

Tataru argues that Romania has followed a path that prioritizes exchange rate stability, even as local price and wage pressures remain elevated:

“Romania has largely opted for a modified version of the latter approach, managing to combine exchange rate stability with rapid wage growth and persistent inflation for several years. The needed adjustment did not disappear, however, but it was largely redirected into real appreciation and a wider current-account deficit.”

EUR/RON Path and Macro Pressures

The combination of limited nominal depreciation, faster domestic cost growth, and a broader current account deficit underscores the tension between short-term inflation control and longer-term external competitiveness in Romania’s policy mix.