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Isarescu: EU recovery package from COVID 19 crisis will have important contribution to back our relaunch efforts


The future economic situation will depend mainly on evolution of public health and the EU recovery package from COVID 19 crisis will certainly have an important contribution to supporting our relaunch efforts, considers Mugur Isarescu, the Central bank - BNR governor in a speech made at the 43rd Reunion of Governors' Club in the Black Sea area, the Balkans and Central Asia.

The BNR governor pointed out that prior to the outbreak of COVID 19 pandemic, Romania's economy recorded a relatively good evolution, with an average annual growth rate of 4.1% in 2019, with a slight drop in quarter 3. At the beginning of 2020, prospects on the evolution of Romanian economy for the next period showed the continuation of the positive trend. 

“Indeed, the latest statistics show a 2.7%economic growth for the first three months of 2020compared to the same period of 2019, representing the highest growth of EU countries. However, I would like to point out that in the last 4 years, this economic growth was backed by salary increases and the strong consumption growth, while fiscal and foreign imbalances grew and the annual inflation rate was about 4%, the highest in EU countries. In this context marked by significantly pro-cyclic fiscal policies, BNR maintained a more restrictive monetary policy by keeping the monetary policy interest rate at a relatively high level of 2.5%, as well as mandatory minimal reserves of credit institutions for passive stock in lei and foreign exchange (8%)”, Isarescu said.

He pointed out that the initial economic impact of the pandemic was strong, increasing existing imbalances, on the background of pressures associated to food supply, the depreciation of national currency and the increase of cash need. Thus, taking into account the amplitude of economic decline in April, official estimates on the evolution of GDP for quarter 2 indicates a 14% contraction of economic activity against quarter 1.

He also presented some of the measures adopted by BNR as answer to the crisis.

“As of March 16, 2020, the president of Romania declared the emergency state, initially for one month, then to be extended for another month. Protecting public health and ensuring essential goods and services were a priority in that context. Consequently, the immediate target of our central bank was to preserve the stability and liquidity of the banking system, for the good functioning of public finance and real economy. In that respect and according to statuary mandate and independence, BNR adopted a package of measures to back Romanian economy. At the same time, due to the exceptional character of the pandemic state, BNR collaborated with the Romanian government to avoid a possible conflict between measures adopted  and the fiscal ones,” Isarescu declared.

According to the BNR official, the exchange rate plays an important role of public indicator of stability and of the general economic situation.

“Compared to evolutions of other countries in the area, we did not adopt drastic measures  the monetary policy interest rate. Thus the reduction of monetary policy interest ate at the meeting of the BNR Administration Board of March 20 was from 2.5% to 2% per year, together with narrowing the symmetrical corridor made by permanent facility interest rates around the monetary policy interest rate. Moreover, last week, the monetary policy interest rate was reduced again to the level of 1.75%,” Isarescu said.

He mentioned that, in the last two months, the exchange rate was relatively stable, while the annual IPC inflation was around 2.5%.

According to the central bank governor, next to monetary policy measures adopted, the BNR Administration Board also adopted measures meant to help debtors, natural and juridical persons, by making more flexible regulations about certain demands of credit institutions. BNR also adopted measures at operational level to ensure the continuation of good functioning of payment and discount systems in the national currency, as well as ensuring cash flows needed by the bank to carry out all operations.