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Cronicile

Mugur Isarescu – Explicit position: Save and grow SMEs. Economy is unbalanced. National currency “is where it should”

de Adrian N Ionescu 25.6.2017

The Governor of the National Bank of Romania, Mugur Isarescu (foto), has launched harsh allegations against the policy of encouraging consumption, which has unbalanced the economy and leads to financing jobs abroad, as imports increased faster than exports over the past two years.

Romania has been facing for about two years a faster growth of imports, amid the stimulation of consumption, in the context of SMEs having a high need for investment loans and banks needing to be more efficient in granting these loans, according to the BNR Governor.

“There is a risk that the investments will not be financed (…) There is a bad atmosphere of mistrust. Unless we finance the investments, they cannot grow, we cannot get out of this imbalance. Imports have been growing faster than exports for two years, the economy is slightly unbalanced, not to say more. By financing consumption, we finance jobs abroad. There is a substantial lending potential if structural reforms make many companies bankable,” Mugur Isarescu said, quoted by Agerpres, at a press conference organized by BNR and the European Investment Bank (BEI).

On the other hand, the BNR Governor warned that, although the financing of the enterprises is low, he does not advocate “for the increase in lending just to have more lending. We do nothing but prepare a new crisis.”

When the loans finance efficient investments, they help increase potential production. That is what we say it is missing now. It is stimulated consumption too much and potential GDP is left behind. We have a negative gap. This negative gap means a potential imbalance, whether it manifests on the foreign side of the balance of payments, or in future inflation, it is not well to stimulate consumption far beyond what the economy produces,” said Mugur Isarescu quoted by Agerpres.

Romanian leu “is where it should”

Romanians should not worry and believe that the Romanian leu will continuously depreciate, the Governor of the central bank also said.

“We, Romanians, are not a unique case, nor should we believe that we are a country with inflation that could not be solved nor that Romanian leu would continuously depreciate. Forget that we had negative inflation, even if it has been determined by some tax policies. Inflation is low. The local currency does not depreciate. It is where it should be. I believe we got rid of many fixed ideas of the past and we are a normal, European country, to say so. And in the political and social field we are not far from a certain frequency, maybe we are more emotional,” Mugur Isarescu said, quoted by Agerpres.

In fact, BNR Governor Mugur Isarescu said two months ago that “if we considered a 1-2% change to be a depreciation, it is an exaggeration compared to the domestic and international tensions from the first quarter.”

In February, when the exchange rate exceeded the 4.5 lei threshold, the governor said that “there is no room for the appreciation of the exchange rate. There is not much room, not to say there is no room at all.

The Romanian leu lost on the interbank market 1.3% of its value against the euro since the beginning of the year, the interbank market that is dominated by the opinion that BNR will not intervene on the market until the exchange rate makes sudden jumps over 4.6 lei/euro.

On Tuesday, for the third time in the last few days, the national currency hit the lowest level in the last five years against the euro, reaching a BNR average of 4.5987 lei on Wednesday.

The market speculates primarily the political crisis. The worst average BNR exchange rate in history, of 4.6481 lei/euro, has been recorded on August 3, 2012, at a moment of another political crisis, caused by the referendum for dismissing Traian Basescu.

Erste Group Research has confirmed its estimate of 4.62 lei/euro exchange rate at the end of the year and adds three fundamental causes to the political crisis:

  • The deficit of foreign capital inflows,
  • The increase in the current account deficit (in the context of a poor absorption of the European funds), but also
  • The “central bank rhetoric, non-stimulating the appreciation of the leu”.

In turn, the Transilvania Bank analysts estimate an annual average of the national currency exchange rate of 4.54 lei/euro in 2017 and 4.56 lei/euro in 2018.

UniCredit Bank expects for the “pair (euro/leu editor’s note) to continue trading with an upward trend until the political arena becomes clear.”

On the interbank market, the euro was varying relatively calmly below 4.60 lei, on Wednesday afternoon, at a level of 4.5985 lei at 13.05, when the BNR average has been announced.

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