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Isarescu: 'Exchange rate stability is essential to Romania'

In a speech delivered on Friday at the Romanian Academy, Governor of the National Bank of Romania Mugur Isarescu reiterated that 'exchange rate stability is an essential nominal objective in order for Romania to join the Eurozone.'

Talking about issues of real convergence on the way to the single European currency, Governor Isarescu said that improvements in the Romanian economy over the past years have allowed a visible attenuation of the fluctuations in the local currency's exchange rates compared with the previous decade.

'The forex regime adopted by Romania that entails flexible exchange rates and less intervention by the National Bank on the forex market, has served the Romanian economy well. Even the supra-appreciation of the local currency in early 2007, amidst massive foreign capital inflows following Romania's accession to the European Union on January 1, 2007, was corrected by the very autonomous movements of the forex market. We can safely say that there are currently no significant pressuring factors from the exchange rate for its appreciation or depreciation, although the world financial crisis temporarily generates movements to one direction or the other. And yet, the existing balance on the forex market is the result of a policy mix characterised by restrictive monetary measures, with high interest rates, a tax policy insufficiently strict and still subjected to pressure to increase public spending at the same time with dwindling revenues, with wage rises having exceeded productivity gains since long. This is not a sustainable mix. In the long run there is forex balance under the conditions mentioned above, even if in a very short run the high level of interest rates can compensate for the effects of other policies,' said Isarescu.

'Yet, there is no doubt that exchange rate stability amidst deteriorating competitiveness of Romanian products as a result of wages overgrowing productivity will inevitably trigger a deterioration of the trade balance and, in the end, a depreciation of the exchange rate. I would not be surprised to hear people putting the blame on BNR when that happens, without looking at the true, profound causes of the unwanted developments. You can now see that both inflation cutting and exchange rate stability are indissolubly linked to a consistent policy mix adopted by the authorities, particularly because the incoming election has led to unsustainable promises and event to the legalisation of some measures able to significantly effect macroeconomic stability. BNR has a duty to signal out the major risks that might be generated by ungrounded policies. Unfortunately, credibility is hard won and easily lost, and when credibility is lost, the consequences are much more severe that a temporary increase in the public deficit,' Isarescu warned.

Sursa: http://www.rompress.ro

Tags: forex isarescu exchange stability bnr

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