Isarescu criticises Treasury's sudden moves

The Treasury’s moves to raise massive cash volumes are the negative factor that has caused the surge in overnight interest rates on the inter-bank monetary market to levels of over 50% and pushed the NBR to provide banks with RON, states central bank governor Mugur Isarescu.
“The massive cash absorption is not a fortunate thing; budgetary revenues must start following a stable trajectory, and problems related to where and how VAT is paid must become a thing of the past,” said the head of the central bank, criticising the “huge variations” in interest rates witnessed lately.
On Friday, the central bank supplied the market with almost 3 billion RON, according to dealers, through one-week repo operations (loans for banks secured with government securities or NBR certificates of deposit) with an average interest rate of 8.46%, after a week during which overnight interests constantly topped 20%, leaping even as high as 54%.
“We offset the shortage generated by the huge cash volumes raised by the Finance Ministry, inclusively by its tax collection at the end of April. We consider there’s no way for the Treasury to rapidly reintroduce the cash into the system,” explained Isarescu.
He also said the NBR would continue to inject cash into the market whenever there is a cash shortage so that interests could stabilise, but at the same time would maintain “the very high level” of minimum compulsory reserves.
“We are not only dealing with cash absorption, but we’re also operating cash injections because this is how the system works.
“Looking at the level of interest rates on the currency market in recent days, we’ve noticed an over-tight control of liquidity amid the Treasury’s move to raise a massive cash volume, of almost 2 billion euros,” says the central bank head, mentioning it was almost high time the NBR acted on the currency market as a lender, too.
At the same time, he accounted for the fact that the central bank would rather provide the market with RON only in case of necessity than cut down minimum compulsory reserves, which would have generated a constant additional cash flow, by the disorderly behaviour of the State Treasury.
Although he usually refrains from commenting on the Government’s fiscal policy, Isarescu included on the list of major risks to hitting the 4% inflation target the shift to consumption of some budgetary expenses that were initially destined to investments, collecting smaller-than-projected budgetary revenues and wage raises.
On the other hand, Isarescu said he was happy with the dwindling inflation growth forecasts, considering “there is more confidence” on the market in the inflation target being hit. Still, he anticipates the possibility of inflation rebounding, also offering a comforting reason: “it’s happened in all countries”.