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Isarescu: Keeping monetary policy rate will lead inflation towards target

Keeping the monetary policy rate will lead inflation towards target in the upcoming period, said on Thursday the Governor of the National Bank of Romania (NBR), Mugur Isarescu, on the occasion of being conferred the Doctor Honoris Causa title by the Romanian- American University.

'You will you see that leaving unchanged the monetary policy rate, not its increase, or decrease, will lead inflation in the next period to the target,' said Isarescu, who also referred to those who criticized the position of BNR on the principle 'if you go to the doctor, and he/she does not give you a handful of drugs, then he/she is not a good one. '

BNR Board decided on Wednesday to leave unchanged the monetary policy rate at 6.25 percent for the ninth consecutive meeting (since May 2010), and to maintain the existing levels of minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions, Agerpres said.

This spring, the central bank revised the inflation outlook for 2011 from 3.6 percent to 5.1 percent, above the upper limit of the variation target, of plus / minus 3 percent plus/minus one percentage point (2-4 percent) . BNR also revised upwards the inflation outlook for 2011, from 3.2 percent to 3.6 percent. The inflation target for 2011 is also 3 percent plus / minus one percentage point.

BNR warns bankers macro-prudential regulations are in store

Governor of the National Bank of Romania (BNR) Mugur Isarescu on Thursday warned the bankers that fresh broad-scope regulatory measures will be necessary within short.

In his acceptance speech after receiving the honorary degree of the Romanian-American University of Bucharest, Isarescu referred to macro-prudential policies, a new concept designed to ensure the soundness of the financial system overall and avoid systemic risk and which replaces neither macroeconomic policies (the monetary and fiscal policy), nor micro-prudential policies that deal with the soundness of credit institutions as individual entities.

According to Isarescu, the new regulatory approach will take big steps in the coming years; the central bank official stressed that the measures will be effective only if they are consistently implemented in all countries throughout Europe, otherwise banks will resort to outsourcing, for instance, loans in foreign currency.

The BNR governor insisted that bankers should not consider the new measures as some kind of restriction, adding that they might indeed appear as tough limitations when referenced to what happened in 2001 or 2005, but from the perspective of what might follow by 2020 they could be even considered a 'relaxation'.

In his turn, advisor to the BNR governor, Adrian Vasilescu, remarked that the envisaged regulatory measures will only be effective if they are consistently applied by all countries. He gave a theoretical example whereby Romania supposedly resorted to the toughest measure of banning foreign currency lending, but the residence states of the parent banks of credit institutions in Romania would further allow it. In this case, the customers of the banks running on Romanian capital would turn to the parent banks for foreign currency loans.

The BNR governor added that macro-prudential policies represent the future and are an alternative to controlling the capital account. Isarescu also said that macro-prudential policies took shape after it became clear that actions aimed at individual financial entities could exacerbate the problems inside the financial system, and that in other words, the build-up in system-wide risks needs to be addressed.

The central bank head also mentioned that unlike other markets, competition in the financial system endangers financial stability, because it leads to narrower profit margins and reduces capital reserves and implicitly the chances for stability.

Romanian banking system is dominated by herd spirit

Spirit of the herd is dominant in the banking system, said on Thursday, at the Romanian-American University, Governor of the National Bank of Romania / BNB / Mugur Isarescu, giving as an example the movements of the exchange rate, which tends to be either over-valued, or undervalued.

'They have one leader, a guru, a ruler, speaking by the way of the exchange rate ongoing movements (...) Stop having obsessive preoccupations if the exchange rate hovers with 2-3-4 percent. It cannot be fully stable. These movements are absolutely normal. Who determines these movements? The exchange rate movements are determined by the spirit of the herd and I do not use it deprecatingly', said Isarescu, adding that, almost always, the exchange rate is either undervalued or over-valued.

BNR official also said that the monetary market optimization might not depend on an equilibrium rate at macro-economic level.

Sursa: http://www.actmedia.eu

Tags: policies prudential macro financial system exchange movements percent bnr inflation policy monetary target governor romanian romania isarescu