BNR governor Isarescu argues for nominal XR stability as an anchor

Although Romania's Central Bank (BNR) governor Mugur Isarescu explains the local currency's slight strengthening in recent weeks by the forex inflows generated by diaspora returning home for the summer season (as opposed to BNR's interventions), he implied that the monetary authority would remain active and not leave the national currency to weaken below RON 5 to EUR.

The nominal exchange rate is one of the very few credible anchors the National Bank can use to control inflationary expectations, he explained.

This comes against the International Monetary Fund's recommendations, included in the Article IV Conclusions in June and can be interpreted as temporarily "suspending" the external economic competitiveness argument - possibly because of its diminished relevance during a transitory regime of unusual energy and food prices.

"As external competitiveness has weakened and to help absorb external shocks, exchange rate flexibility should be increased over time, together with the necessary fiscal consolidation," the IMF recommended in June.

However, governor Isarescu preferred to stress more the role of "anchor" played by the exchange rate - a role the Fund admitted as relevant in the past.

"In Romania, we have not many anchors that the public can trust. That's the last thing we'll let happen: get the exchange rate out of control. The inflation rate will stabilise this quarter. It is possible that in August we will see some increases, but gradually, the tendency is to decrease," Isărescu said on the occasion of the presentation of the Inflation Report, quoted by Economica.net.

BNR governor stressed that he would continue to use this policy tool and assured that one euro would be worth less than RON 5 as long as needed.

"You can't let go of an instrument of control when you have a war so close," he stressed.

(Photo: George Calin/ Inquam Photos)

iulian@romania-insider.com

Normal

BNR governor Isarescu argues for nominal XR stability as an anchor

Although Romania's Central Bank (BNR) governor Mugur Isarescu explains the local currency's slight strengthening in recent weeks by the forex inflows generated by diaspora returning home for the summer season (as opposed to BNR's interventions), he implied that the monetary authority would remain active and not leave the national currency to weaken below RON 5 to EUR.

The nominal exchange rate is one of the very few credible anchors the National Bank can use to control inflationary expectations, he explained.

This comes against the International Monetary Fund's recommendations, included in the Article IV Conclusions in June and can be interpreted as temporarily "suspending" the external economic competitiveness argument - possibly because of its diminished relevance during a transitory regime of unusual energy and food prices.

"As external competitiveness has weakened and to help absorb external shocks, exchange rate flexibility should be increased over time, together with the necessary fiscal consolidation," the IMF recommended in June.

However, governor Isarescu preferred to stress more the role of "anchor" played by the exchange rate - a role the Fund admitted as relevant in the past.

"In Romania, we have not many anchors that the public can trust. That's the last thing we'll let happen: get the exchange rate out of control. The inflation rate will stabilise this quarter. It is possible that in August we will see some increases, but gradually, the tendency is to decrease," Isărescu said on the occasion of the presentation of the Inflation Report, quoted by Economica.net.

BNR governor stressed that he would continue to use this policy tool and assured that one euro would be worth less than RON 5 as long as needed.

"You can't let go of an instrument of control when you have a war so close," he stressed.

(Photo: George Calin/ Inquam Photos)

iulian@romania-insider.com

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