"A smooth sea never made a skillful mariner." - English Proverb

FOREX MARKET
In April, Romania recorded the highest monthly inflation since the beginning of 2007, as CPI rose by 0.52% m/m, driving headline inflation up to 3.77% from 3.66% y/y at the end of Q1. Annual average inflation dropped to 5.1% in April from 5.4% y/y the month before, due to the favourable base effect. In April, consumer price index was driven by the food goods (0.49% m/m) and non-food goods (0.84% m/m), due to higher consumption occasioned by the Easter celebration and the administrated hikes. The services was the only sector that recorded deflation during the month (-0.2% m/m), due to the decrease in telephony tariffs.

On Wednesday, the single currency was bided at 3.3030 level at the opening of the domestic trading. Shortly after, the selling pressure intensified and the pair broke the 3.3000 threshold, as the high yields and treasury bills had fueled the appetite for the local currency. RON hit another 4Y and high against the euro, rallying until 3.2750 level, despite the dovish move of its regional peers. On May 10th, the EUR/RON was bided at 3.2820/3.2840 levels at the opening of the domestic session, but gradually the selling orders prevailed the trade and the exchange rate fell until 3.2740 level. However, towards noon, RON seems to have lost fuel, as the pair reversed its move to the upwards until 3.2830 level till the moment of writing.

On May 9th, the Fed kept the benchmark rate steady at 5.25% as widely expected by the market. The accompanying statement of Fed was mostly in line with the expectations of the market, as Fed mentioned that core inflation remained rather high. The wording of Fed fueled speculations that the federal rate would be cut at least once this year, however the dollar held up well and remained in recent ranges. On Thursday, the market shifted attention towards the policy meetings to be hold today at ECB and BoE. The ECB is likely to hold at flat 3.75%, but the market is largely expecting that Trichet would signal a rate hike in June. BoE is expected to raise the policy rate today from 5.25% at least with 25 bps.

MONEY MARKET
On Wednesday, the volatility persisted on the Romanian money market, as the ON maturities were traded at 14/20% bids/asks at the opening, then they rose up to 18/27% levels in the first hours of trading, but decreased gradually in the second part of trading to 12/17% zone. The MF held one-year T-bills auction for the indicative amount of RON 500mln, but drained a modest amount of RON 43mln, as it accepted only bids below 7.21%. The overall offer stood at RON 735mln, but participants demanded higher yields, given the uncertainties plunging over Romania in the next period. On May 10th, the overnight interest rates were quoted at 12/17% levels at the opening of the domestic money market.