The increase is mainly due to gains obtained from speculation against the leu, and the fueling of the European Commission’s euro account in Romania, as well as the appreciation of the dollar component of the reserve.
Isarescu used this increase to state again that there are no direct effects of the financial crisis on Romania, but warned that there may be indirect effects, caused by a rise in the price of financing, as well as local effects, which he referred to as a “nervous breakdown.” Moreover, the Governor said that while the drop of certain economic indices should lead to disinflation, electoral pressures tend to boost inflation.
“We will announce the new 2009 inflation target in the first quarter of next year, after discussing this with the new government,” added Isarescu. He mentioned that he has not been invited by any political party to head the new executive.
“We are hoping for 5.5, even 6 percent economic growth for 2009, if investments are directed to areas such as infrastructure and agriculture, which have a huge potential,” Isarescu added. On the other hand, “double-digit salary rises are incompatible with disinflation”, BNR’s Governor said yesterday. BNR has already revised its end of 2008 inflation forecast to 6.7 percent from 6.6 percent, and to 4.5 percent from it initial 4.2 percent for 2009.
“Inflation is boosted by pressures due to excessive demand, caused by a higher economic growth rate and a fiscal and revenue policy that stimulates business,” added Isarescu.
The scenario is less favorable regarding the evolution of import prices, even though certain prices, such as the price of oil, have plunged. BNR is considering a more favorable evolution of the oil price, because the previous forecast was based on an average annual price of $140 (€109.97) per barrel. The price of oil is currently below $70 (€54.98) per barrel.
Mugur Isarescu added that there is no liquidity crisis on the market, but rather fragmentation of the banking sector. “While four or five banks have excess liquidity, another 26 are looking to borrow,” explained Isarescu. He further said that once the cash reserve ratio dropped BNR has once again become the banking system’s net lender after eight years. The Governor did not wish to comment on the net difference resulting from foreign exchange market operations, a figure that would have divulged losses registered by persons who speculated against the leu.
However, Isarescu did admit that there were changes in the monetary base in October, reiterating the warning he formerly put out to speculators against the leu: “The lei are with me.”
“Control of the country’s funds is to the advantage of any country’s central bank,” said BNR’s Governor.
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