By Luiza Ilie
BUCHAREST (Reuters) - Romanian central bank Governor Mugur Isarescu urged the Balkan state's leaders on Monday to reduce political tension that has hit the leu currency, but he added that, given the turmoil, the exchange rate was "almost reasonable".
The leu has been driven to new record lows this summer due to Prime Minister Victor Ponta's efforts to impeach his political rival, suspended President Traian Basescu, which have caused policy paralysis and earned criticism from Brussels.
While the bank kept its forecasts for inflation on hold, Isarescu warned that most risks now pointed to a rise for price growth. That has been exacerbated by pressure on the leu and has helped justify the halt in the bank's cycle of easing. He also said the political risk would raise Romania's cost of borrowing.
"We are politically neutral but it is our duty to show the reality," Isarescu told a news conference as he presented the bank's quarterly inflation report.
"We are dependent on international markets and they penalise (us) dramatically. For now this shows on the exchange rate but it will (also) show in funding costs."
On Monday, the leu rebounded by 1.2 percent from a record low hit on Friday. Dealers said the central bank had intervened to prop up the currency.
The move followed an announcement by the Constitutional Court that it would shorten its postponement of a ruling on whether a July 29 referendum to impeach Basescu was valid or not.
It was originally scheduled to decide last week. Now it will now rule on August 31.
A vast majority - 88 percent - of those who took part in the referendum voted to oust Basescu, but turnout failed to reach the 50 percent plus one threshold of voters required to make it valid.
The court has now asked to see revised voter lists, which analysts say may reveal irregularities in voting, which could help Basescu.
But it may also show there are significantly fewer voters registered overall, which could push the turnout level over the 50 percent threshold. That has left the outcome of its decision on the plebiscite's validity unclear.
COST OF TENSION
Ponta's drive to oust Basescu, who he accuses of abusing his position and blocking the government's policies, drew harsh criticism from the European Commission, Berlin and Washington, who said his government had undermined democracy and rule of law.
Ponta's centrist-leftist Social Liberal Union party looks set to hold onto power following a general election this autumn, but the country of 19 million could suffer from policy deadlock if Basescu stays and the two sides remain at odds.
Isarescu said the weakness of the leu, trading at 4.5830 per euro on Monday, was not in line with Romania's economic fundamentals. Dealers say the bank frequently intervenes in the currency market to prevent the leu from sliding more dramatically.
Isarescu also criticised the government for failing to take advantage of EU funds earmarked for development projects. And he said the political tension could undermine the government's efforts to finance itself.
"Domestic political tensions were first reflected in the exchange rate. But behind it there are the costs to finance the budget deficit, and ... that would have bigger consequences," Isarescu said.
"Given all that has happened in Romania, I would say the leu was almost reasonable."
The bank kept its forecast for end-2012 inflation at 3.2 percent. It saw it reaching 3 percent at end-2013. In June, Inflation quickened to 2.0 percent, from 1.8 percent in May.
(Additional reporting by Ioana Patran; Writing by Michael Winfrey)
