BNR will use all tools for securing price stability

Publish date: 26-11-2007
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The evolution of the exchange rate should be regarded in an overall manner, one could develop analyses on RON depreciation if one considers the peak reached by the national currency in 2007, according to those specified on Saturday by Governor of National Bank of Romania, Mugur Isarescu, in an interview for The Money Channel TV.

"The same does not remain valid if we regard the quotation in 2006 or the evolution of the Single European Currency worldwide. National Bank of Romania will continue to use all necessary tools in order to secure price stability," Isarescu declared.

BNR Governor wanted to underline that economy was on the right track, in spite of some corrections being made, but they should not be reasons for panic. He affirmed that the statement "still well" comes against a background of turbulences registered in the international financial markets.

The head of the central bank indicated that situation was under control, including the inflation level.

Isarescu showed that there is a risk for Romania's economy to an over - exposal, this statement being made with reference to the high current account deficit level.

Romania entered the turbulence time in the international markets having a high current account deficit level and the economic policy changes could be felt only after a certain time period, BNR Governor explained.

"If we look at the countries that we can compare with, Hungary, Poland, Czech Republic, analyzing the situation carefully, we are not really over-exposed, but there is a risk in this sense. We entered the turbulence time with a high current account deficit. The measures we shall adopt target mainly a slow down in the current account deficit trend, first by bringing it to 14 per cent, and then going down to 10 per cent, of Gross Domestic Product (GDP)," Mugur Isarescu said.

There is a crisis on the forex market

One could not deny the existence of a crisis in the forex market, considering the late developments of the exchange rate, and violent changes in the exchange rate are not desirable, the BNR Governor said.

"I cannot deny (the existence of a crisis in the forex market - editor note), when such exchange rate movements happen," Isarescu declared. He added that the significant drops, followed by strong raise, are specific to turbulences in the financial markets.

In his turn, Finance Minister, Varujan Vosganian, declared that the balance point for the national currency is around RON 3.4 for EUR 1, if considered economic competitiveness, trade balance and productivity in Romania. He believes that EUR appreciation is a context outcome, generated by the fact that because of the financial crisis in the Anglo-Saxon markets, speculative funds, portfolio investments withdraw from emerging zones and this resulted in EUR appreciation.

Also, Isarescu indicated that the exchange rate was an important variable for all economies, and in case of a "small and open economy" as Romania is, the exchange rate fluctuations are not desirable.

"In spite of targeting inflation, we are not comfortable with high rate fluctuations", Isarescu said. He showed that BNR role was rather to mitigate the strong oscillations of the exchange rate, the central bank not being engaged in securing full rate stability. At the same time, the BNR official repeated his advice to the people related to saving and borrowing in national currency.

Speaking about the opening of the capital account, Governor Isarescu indicated that Romania was not fully prepared for this operation, but this is an EU requirement. "It is true, whether we want this or not, that when we opened the capital account, we have opened ourselves towards a market with high waves, which you cannot prevent by means of interest or exchange rate only," Isarescu said.

RON 3.6221/EUR - the peak of the past 19 months

RON depreciated fast lately, and BNR reference rate on Friday was RON 3.6621 for EUR 1, which is the peak of the past 19 months and it stands for 16.4 per cent advance as against this year lowest, which was RON 3.1112 registered on July 2.

A higher level of RON/EUR quotation than on Friday was published on January 25, 2006 when the rate was RON 3.6242 for EUR 1.

At the end of Friday inter-banking session, the exchange rate dropped to RON 3.6140 for EUR 1, following that there were speculations from dealers, throughout the day, as to BNR intervention in the market.

The pressure on salary raise will continue

Romania will continue to confront with pressures from salaries, a situation also generated by the messages conveyed by the Romanian workers from abroad related to earnings from other countries, as Mugur Isarescu, BNR Governor, declared on Saturday.

Considering these messages, coming from the workers from abroad, BNR Governor inquires how realistic was that one would rely on 3 to 4 per cent salary raises.

He indicated, for The Money Channel TV, that National Commission for Prognosis was indicating 12 per cent salary raise, but this raise was 20 per cent this summer.

Isarescu said that he did not expect wonders regarding the salary policy, showing that some realism is advisable.

BNR Governor indicated that in spite of an elective year coming next, the budgetary programmes should not follow an expansionist trend, but a prudential one. BNR started a restrictive monetary policy, aimed at slowing down inflation, but salary policy continues to be expansionist, and the fiscal one, rather neutral, Isarescu added.

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