According to Isarescu, present at the Romanian Banking Forum, the central bank needs to find new solutions to continue the disinflation process, given that the classic levers have been pushed to their limit.
The governor has admitted that the national bank had reduced interest rates more and faster this year than it would normally do to reduce the interest difference compared with international markets. At the same time, Romania had to liberalize the capital account even if the International Monetary Fund (IMF) had opposed it, after the European Union had requested it. „We were unlucky because we reduced interest rates when they were at an historic low on international markets,” said Isarescu, adding that banks could catch their breath if the Central European Bank followed the upward trend set by the U.S. Federal Reserve.
Other measures applied by the central bank, considered unorthodox by its governor, had allowed the foreign currency rate to become unpredictable and reduced the costs of the BNR with sterilization operations. Further steps also helped the bank to adjust the minimum mandatory reserves and apply a set of prudential and administrative measures.
The central bank announced it could reduce the contribution of the commercial banks to the Guarantee Fund for Deposits in the Banking System. The capitalization of the fund amounted to approximately 200 million euros. The BNR official also stated the public institution could reduce other costs supported by the commercial banks, such as payment related costs, which should reach the same level as in the European Union, of one euro per operation.
Isarescu stated that the central bank will continue the policies applied for the exchange rate, designed to avoid exaggerated fluctuations. „If you administer the exchange rate, there are problems as investors start to make estimates on the volume and timing of the BNR interventions on the market,” added Isarescu. The BNR governor stated that the financial institution sometimes encourages the flexibility of the exchange rate to bring to zero the sum of earnings and losses on the market. „I do not know where the rate will settle and I do not have to know, but BNR must not allow exaggerated fluctuations and avoid concentrating the earnings on one niche,” said the governor of the central bank.
Although some of the BNR’s steps could negatively affect commercial banks’ profits, BNR must look after price stability and other macro economic indices, considers Isarescu, thus preventing the high costs of a slippage.
The central bank’s official stated the institution had to limit the development rate of foreign currency credits, otherwise the BNR risked losing any influence the reference interest rate would have on the economy.
Isarescu: budget surplus is not sustainable
The chief negotiator of the International Monetary Fund for Romania, Emmanuel van der Mensbrugghe recommended the authorities provide for a budget surplus of two percent of Gross Domestic Product (GDP) and concentrate efforts to combat inflation on to wages policy. The budget surplus proposal was rejected by the government, as the authorities will need significant financing for infrastructure projects before EU accession. Moreover, Isarescu stated that, given the current macro economic context, Romania could not have applied the measures proposed by the IMF. „We hold the reins and we can not freeze budgetary wages since a series of studies point out they should double or even triple in Romania over the next few years,” said Isarescu, adding that the budget surplus proposed by the IMF is not possible in Romania.
The BNR official admitted that the central bank sometimes lacks transparency and addressed another criticism of the IMF over exchange rate operations, explaining the bank can not directly aim at the exchange rate to avoid speculative capital.
