BUDAPEST/BUCHAREST: Bucharest stocks touched a new nine-year high on Monday, buoyed by healthy first-quarter company earnings, despite concerns that wage hikes and tax cuts will exacerbate Romania's budget deficit.
Other central European stock indices and currencies were treading water amid a lack of major domestic news and due to bank holidays in the United Kingdom and the United States.
Bucharest's main index was flat at 0839 GMT, a bit off its morning peak which was also its highest level since early 2008.
Committees in the Romanian parliament's lower house are due to discuss on Monday a bill to lift public sector wages further, which parliament is expected to pass before its summer recess starts next month.
The debate about the bill, "its implementation, timing and the budget impact, should be closely monitored," Bucharest-based ING analysts said in a note.
Romania has led a surge in wages in the region as employers including governments fight an exodus of young skilled workers to richer, Western European Union (EU) members.
January-April budget data have shown a surplus, but the EU, the International Monetary Fund and the local fiscal council came out last week to express concern that the government's policies will lead to a wide deficit.
Finance Minister Viorel Stefan told Reuters in an interview late on Friday that the government would press ahead with tax cuts next year as the economy could continue to grow at a robust rate of over 5 percent this year.
Growth in the EU's eastern members has generally picked up in the first quarter, but central bankers have not appeared worried over inflation so far.
Regional stock indices are trading near multi-year highs. Its main currencies are also trading near multi-month or multi-year highs, except for the leu which has been underperforming due to the concerns over the Romanian budget.
May Purchasing Managers' Index (PMI) figures due on Thursday are expected to confirm robust growth in the region but may not boost regional currencies much more.
"Current strong CE FX rates (with CE currencies among the strongest emerging market currencies in recent weeks, partially supported by the ongoing EUR strength) already mirror the economic improvements visible over the past months," said Raiffeisen analyst Wolfgang Ernst in a note.
Regional currencies were mixed, with the zloty firming slightly against the euro, while the Czech crown , the forint and the leu shed about 0.1 percent.
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