BUDAPEST: The leu firmed on Tuesday after Romania's central bank (NBR) said monetary policy has been tightened through strict liquidity controls in order to fight inflation, which could stay above the 1.5-3.5 percent target in the short term.
The bank kept interest rates on hold as expected but NBR Governor Mugur Isarescu said the era of excess liquidity in markets and low interest rates had passed.
The leu gained 0.1 percent against the euro to trade at 4.7591 at 1352 GMT.
Other Central European currencies firmed slightly, rebounding from earlier falls.
Romania's overnight interbank rate was bid at 3.17 percent, near February's five-year highs, reflecting the tight conditions in local money markets.
It has been above 3 percent since banks' one-month reserve period started on March 25, staying unusually steady.
"While maintaining the key rate unchanged in 2019, we expect the NBR to allow ROBOR rates to remain above 3 percent in order to cope with the deterioration (in the) inflation outlook," Raiffeisen analyst Silvia Rosca said in a note before Isarescu spoke.
The government's decision last week to decouple a controversial new bank tax from the level of interbank rates did not dispel worries over policy unpredictability, but has eased concerns that the independence of monetary policy could be threatened.
The NBR is unlikely to use its regained freedom for raising interest rates as that would lead to an unwanted appreciation of the leu, Erste analyst Eugen Sinca said in a note.
"(The leu's rise) could very well be related to timely FX interventions in favour of the leu and liquidity measures targeted towards maintaining a moderate liquidity deficit in the market," he added.
Romanian government bond yields mostly rose, with 10-year yields up 6 basis points to 4.95 percent.
Hungary's corresponding yield was 3 basis points higher at 2.95 percent, while Poland's yield dropped 1 basis point as German and US yields resumed last month's decline.
According to a Reuters poll of analysts, Central European 10-year yields are expected to rebound over the next 12 months, led by Hungary, as worries over the world economy could ease and governments could increase spending.
The forint regained some ground to trade at 321.58 versus the euro.
It plunged through its 200-day moving average at 321.8 in early trade to 2-and-1/2-month lows, after a central bank official confirmed that the bank had dropped its hawkish bias.
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