BNR Governor: The leu will remain stable this year

The statement was made during a press conference on the loan agreement signed by Romania with the International Monetary Fund (IMF), the European Commission (EC), the World Bank (WB), and other international financial institutions.
Moreover, Isarescu’s statement comes in support of other statements, expressed on Wednesday by the Head of the IMF mission in Romania, Jeffrey Franks. He said that BNR is not protecting a certain level of the exchange rate, but could intervene in future to limit the „natural“ fluctuations of the national currency throughout the year, and to ensure that inflation returns to within the targeted range.

The Citibank group estimates that the leu/euro exchange rate will remain at RON 4.2–4.3/€1 for the rest of the year. The economists of the U.S. group expect the central bank to continue its intervention policy of the foreign currency market to reduce excessive volatility. „The fund sees no reasons for changing the policy for the foreign exchange market. This is why we consider that the IMF approves BNR’s policy to become actively involved on the foreign currency market to control excessive volatility,“ Citibank’s analysis indicates.

Romania took out this loan to solve private sector financing problems, excluding the banking system. In the non-banking private sector, more capital will exit than enter the country in 2009, making public financial support essential. In the banking system, the balance sheet will be close to zero, according to Isarescu, meaning that capital entries will equal exits. The private external debt of companies is the reason that the government considered a foreign loan, and this capital flow will also affect the balance of payments and the current account deficit, the latter to narrow to some 8–9 percent of gross domestic product (GDP) in 2009, from 12 percent in 2008. The IMF funds will enter the reserves of the central bank. The loan will represent a replacement of the Cash Reserve Ratio (CRR) of commercial banks with money from international institutions. Economists forecast that BNR will resort to a reduction in minimum reserves, that is to return the money to lenders at a sustained pace. Wednesday, Bogdan Baltazar, former President of the Banca Romana de Dezvoltare (BRD), said that the central bank would lower the CRR on foreign currency by one quarter. At present, CRR has been set by BNR at 18 percent of the lei-denominated liabilities of commercial banks and 40 percent of their foreign currency liabilities, the highest level in the European Union and one of the highest in the world.

However, the central bank seems to be in no hurry to lower the minimum reserves. Isarescu said these will decline, albeit gradually.
’We will see no sharp appreciation or depreciation of the national currency in this period. The exchange rate is stable.' Mugur Isarescu Governor, BNR