The National Bank of Romania did not artificially maintain the exchange rate, and the evolution of international reserves confirms this, BNR Governor Mugur Isărescu said on Tuesday, emphasizing that recent interventions on the market were “much, much lower” than a year ago, according to Agerpres.
The governor explained that international reserves have increased by 40 billion euros in the last five years, practically doubling, which would have been impossible if the central bank had sold large quantities of foreign exchange to artificially maintain the exchange rate.
“We did not keep the exchange rate artificially and this is evident from the evolution of reserves. We should have sold large quantities of foreign exchange to keep the exchange rate artificially low and then how could international reserves have increased? They have increased by 40 billion euros in the last five years. 40 billion euros, that is, they have doubled. What does this mean? We intervened in the market, but mainly by buying foreign exchange and avoiding the appreciation of the leu”, said Isărescu.
According to him, a significant part of these operations concerned the purchase of foreign exchange from the Ministry of Finance, in order to avoid strong fluctuations in the exchange rate generated by massive sales on a relatively small foreign exchange market. In the absence of these operations, the exchange rate would have appreciated strongly, approaching, according to a counterfactual estimate, the level of 4.4 lei/euro.
Isărescu stressed that current interventions are significantly lower than in April-May last year and that, in the opinion of the NBR, the exchange rate seems to have reached a level of equilibrium in the market.
“Unlike April-May last year, our interventions have been much lower now. Much, much lower. I can even say three much: much, much, much lower than they were last year, and the exchange rate seems to have found an equilibrium level. It may be here. The markets can also be wrong,” he said.
The governor showed that Romania can afford greater exchange rate flexibility, given that reserves are at an adequate level, but future developments depend on political stability and the continuation of fiscal correction.
“Markets are very sensitive to both factors: political stability, to have a government as soon as possible, and the continuation of fiscal correction. And pay attention, I’ll say something else to remember: often not only deeds are destructive, but also words. There are moments, at least in financial history, when words are stronger. Words spoken in vain or at inappropriate times,” explained Isărescu.