BNR’s policy of maintaining a “relatively balanced” exchange rate was a correct approach.
The RON’s depreciation will not lead to economic growth in Romania, since excess production capacities that would support a powerful supply are lacking, National Bank of Romania (BNR) Governor Mugur Isarescu stated, pointing out that the Central Bank sold on the market only the forex exchanged by the Finance Ministry. The statement was made during the 10th edition of the “Mugur Isarescu and his guests” event, a forum that mainly centred on how Romania will return to sustainable economic growth. In his speech Governor Mugur Isarescu also touched upon BNR’s intervention on the exchange rate. “The Central Bank’s policy of maintaining a “relatively balanced” exchange rate was a correct approach even though some consider the exchange rate to be overvalued because of the interventions,” he explained. BNR’s interventions on the forex market respected a strict rule. The BNR official pointed out that the Finance Ministry (MFP) drew largely on external sources in order to finance itself during this period, and BNR tried to control the monetary mass’s variations without resorting to sterilizations that are very costly now and that would lead to quasi-fiscal deficit. Likewise, in his opinion, Romania is not in the situation of being able to stimulate export-based economic growth by depreciating the RON. “Exporters are not crying for naught. If you want the depreciation to lead to export-based economic growth you have to take the economy’s structure into account. You have to have excess production capacities. Or quick investments, or sectors such as the agriculture sector where 10 per cent makes the difference, you can export. I don’t see this situation in Romania,” the BNR Governor added. Nevertheless, the governor agrees with the fact that the depreciation gives local producers the chance to win back the internal market by “killing imports,” but investments and boosting production capacities are needed in this case too.
Foreign investments remain big problem
Investments continue to be the big problem when it comes to economic growth, BNR Governor Mugur Isarescu added. “In order to have economic growth you certainly have to create jobs and to boost productivity. That’s where the complications start,” Isarescu stated at the opening of the event. He continued by stating that Romania first of all needs investments. “It’s obvious that Romania lacks saving and we need foreign capital. We would like that to be Romanian capital but Romanian capital has disappeared unfortunately,” the governor added. The BNR official also stated that Romania continues to depend on foreign investments and that he does not believe many portfolio investments could still be drawn. “Productivity and job creation are dependent on investments. I believe that direct investments in unproductive sectors have reached a limit. Technology is needed in order for investments to boost a country’s productivity and there is an overcapacity of production in all emerging countries,” the governor stated. The head of the central bank believes that in current conditions stimulating consumption is not a solution either because Romania lacks production capacities that would answer the demand better than imports do. Also, Lucian Isar, Delegated Minister for the Business Sector, stated that Romania should resort to new methods such as a contribution of technology in public-private partnerships, that we need room for manoeuvre, Romania having a capacity of growth that is higher than that of other states. “I am of the opinion that Romania will become the main destination for investments in Europe in the following period. We are a country that respects macrostability principles, in the sense that we have a small debt as a share of GDP, we have a low budget deficit, a low inflation rate and we continue to be determined to respect the agreement with the IMF and the European Commission,” the minister underlined. The National Bank is worried that the banks that launched savings products for EUR at interest rates of 5 per cent could register losses and capital erosion, BNR Governor Mugur Isarescu added. The statement came following talks on the issue of internal savings as an optimal solution for ensuring the investments needed for sustainable economic growth. The BNR Governor also stated that short-term economic growth can be affected by forcing savings.
RON continues its fall
The BNR reference exchange rate posted yesterday climbed to RON 4.5252/EUR, being very close to the historic high, while the RON/USD exchange rate reached a new high of RON 3.7031/USD. Thus, yesterday’s rate was RON 0.0023 below the historic high registered on Monday (RON 4.5275/EUR), against the backdrop of political tensions. The RON/USD exchange rate grew by RON 0.0189, thus surpassing the previous high registered on Monday (RON 3.6848/USD). At the same time, the official RON/CHF exchange rate climbed from RON 3.7663/CHF to RON 3.7685/CHF.