Romanian Leu: S&P reprieve leaves downgrade risks – Commerzbank

Commerzbank’s Tatha Ghose says S&P’s affirmation of Romania at BBB-/A-3 with negative outlook gave the Leu short-term relief but did not remove downgrade risk. Fiscal consolidation is progressing, yet political paralysis and wide external imbalances persist. He expects the National Bank of Romania to regain some control over EUR/RON, but anticipates another step weaker in coming months.

Leu support constrained by ratings outlook

"Further to our previous comment on Romania’s abrupt exchange-rate break, S&P re-affirmed the sovereign rating at BBB-/A-3 with a negative outlook. This avoids the immediate downgrade which markets had feared, and provided the leu with some relief. But, the assessment hardly amounts to an all-clear."

"Still, the negative outlook remains because continued failure to form a government could hinder actual implementation, which will trigger a downgrade. The current-account deficit remains exceptionally wide at 7.5% of GDP in 2026 and inflation is forecast at 8.3% – faster than S&P had estimated in May."

"The affirmation will allow the National Bank of Romania (NBR) to re-establish control over EUR/RON. But, such support cannot sustainably offset political paralysis, high inflation and structurally weak fiscal and external accounts."

"Hence EUR/RON slightly corrected lower so far, and we do not expect it to regain its earlier level. Rather, the next step jump will probably occur sometime in coming months."