The Romanian leu suffered its sharpest weekly drop since 2009, driven by growing support for far-right presidential candidate George Simion and the collapse of the country’s coalition government.
According to Capital Economics, the leu remains overvalued by roughly 15% compared to Romania’s economic fundamentals. This suggests the currency could weaken further in the near future.
Last week, the leu lost 3% of its value against the euro, falling to 5.12 lei per euro. In response, Romania’s central bank intervened in the foreign exchange market to curb the currency’s decline. This action followed a surge in capital outflows sparked by Simion’s first-round election win, which deepened the political crisis. The crisis intensified when the Social Democrat party pulled out of the coalition, causing the government to collapse.
The leu’s path ahead is uncertain. It is unclear if this recent drop is a one-time correction under the central bank’s strict currency management, the start of repeated adjustments over the coming year, or the beginning of a shift toward more flexible exchange rate policies. The outcome of the second-round presidential vote on May 18 will likely influence the situation. A victory for Simion could trigger even more capital flight.
Capital Economics suggests the central bank may need to allow more controlled exchange rate flexibility if Simion wins. As of March, Romania’s foreign exchange reserves stood at €62 billion, enough to cover about five months of imports. While this is a solid buffer, the central bank’s ability to support the leu is not unlimited, especially if capital outflows persist.
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