NBR considers inducing "hunger" for RON

If we want to stop the exchange rate from moving towards levels we do not see as right, we will generate a hunger for RON on the market, says Governor of the NBR (National Bank of Romania), Mugur Isarescu, indicating the solution that the central bank could resort to in order to counter the volatility of the exchange rate. Moreover, Isarescu says, “The issue of inflows and outflows of speculative capital must be addressed through exchange rate variations.” The “hunger” for RON could be stirred either by absorbing higher amounts of cash from banks or by selling euros on the forex market. The higher demand for RON on the market would have NBR offer higher interest rates for purging operations, so that several analysts had anticipated that the central bank would make a formal decision in this regard during an extraordinary meeting of the Board of Governors, which would decide on a new increase of the monetary policy rate. “I don’t think modifying the monetary policy is an emergency measure. If the NBR wants to strengthen the monetary policy (including interest rates) it has the instruments and the opportunity to do so at any time,” says Isarescu (as quoted by Mediafax), responding to market expectations. The head of the NBR therefore suggests that, just as the central bank conducted market operations at a 5% interest rate in the summer, when the monetary policy stood at 7%, it could now offer interest rates far above the official rate of 7.5% in order to generate a “hunger” for lei, which would soften speculative exchange rate pressures.