The Romanian leu has come under pressure since the collapse of the governing coalition in parliament two weeks ago. On the one hand, this may seem surprising given that Romania has a very weak private economy, with falling activity and almost no credit growth, i.e., it "shouldn't" have inflation or external pressures.

But it does - and this is coming from its budget imbalances. By way of reminder Romania has the worst fiscal position in the EU and the widest twin deficits as a result; add in a big jump in inflation over the past few quarters and now the oil price shock and it's no surprise that the political shakeout has led to a currency sell-off.

We continue stay out of all markets. RON is likely to stay on the back foot in our view with unabated budgetary troubles and higher oil prices. Sovereign dollar spreads also have nowhere to go but wider given Romania's position as the biggest ongoing external issuer in EM. And the big equity rally of 2025-26 clearly had little to do with Romania-specific earnings or growth, and now leaves valuations much more elevated than in the past.