The amount of foreign currency the National Bank has to buy from the market to contain the appreciation of the ROL in nominal terms is so large that it is almost suffocating under this burden, said the NBR Governor's advisor Eugen Radulescu. Appreciation in real terms, excluding inflation, is in any case substantial.
According to Radulescu, the question is for how long the central bank be able to cope with the nominal appreciation pressure, given that foreign currency inflows are on the rise. "If the economic forces take us towards appreciation we will no longer be able to cope," Radulescu said.
The Governor's advisor says that unfortunately, capital inflows do not account for too much of the foreign currency on the market, as the bulk of it is rather made up of money sent back home by Romanians working abroad. According to certain estimates, both the number of people working abroad and their wages have increased, with the amounts they send home perhaps reaching 2.5-3bn euros.
Radulescu reiterated recent comments made by Governor Mugur Isarescu, who said the ROL/EUR exchange rate would plunge to 34,000-35,000 ROL/EUR if the NBR were not buying the surplus foreign exchange on the market. The central bank in the first five months was a net buyer, having accumulated 815 million euros, so the figure could total well over one billion euros by mid year. All these purchases, however, are flooding ROL onto the market, and it is the NBR's job again to collect them back in form of deposits to avoid generating inflation. The NBR is doing this alone, since the Finance Ministry's needs are lower, and the real economy, in spite of its statistical growth, is still not ready to absorb the excess liquidity through credits. The NBR sustains all these costs by an accounting revaluation of its assets in foreign currency, waiting for the monetary surplus to start flowing at a faster rate towards the economy.
The ROL appreciation pressures, which may exceed the rate of labour productivity, are making things even harder for the central bank. The high real interest rate for ROL attracts money from abroad even though capital account deregulation has not yet been completed. The results of bond issues released by BRD and Raiffeisen stand as proof in this regard. The interest rate therefore would need at least to be tempered.
At the same time, however, when economic growth is higher than 5%, "the interest reduction issue should be addressed cautiously, as theoretically, when the economy is growing, there would be no reason for interest to go down," Eugen Radulescu says. All the signals received by the central bank point to the maintenance of this solid growth rate, particularly if the farming year is at least normal.
razvan.voican@zf.ro
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