„What the exchange rate is headed for, the market will tell. I think it is now moving in a sustainable area,” said Isarescu.
The central bank head explained that the reports which sounded alarm that Romania was facing a wide financing gap were not ‘quite out of place’ and that the central bank’s duty is to defend the national currency.
However, on the background of a financing gap, that is when offer and demand for foreign currency are not covered, the exchange rate can be headed anywhere and even go past five lei for one euro. Isarescu stressed that criticism at BNR, finger-pointing to its interventions on the market, also contributed to devaluating the leu.
„That’s what the reserve and the central bank are for.
That nonsense about BNR’s interventions, suggesting in other words that we were wrong to step in, were betting exactly on this. Just let the exchange rate loose, to ride the market trend, they advised. But how was the market supposed to take the exchange rate anywhere when it was witnessing a financing gap?
When the turmoil broke out, nobody knew any longer where it might stop. Even a rate of RON 4.7 for one euro could have made an optimistic perspective,’ explained Mugur Isarescu.
BNR made it clear in repeated public statements that, should Romania have a financing gap, this would be between EUR 7 and 14 billion, but it would be difficult to assess.
Isarescu stressed that although the reports published before the conclusion of the agreement with the IMF were indicating that Romania was facing a financing gap far wider than the real one, the country’s credibility improved considerably after the agreement was inked.
„At the moment the agreement was concluded, the private sector’s financing gap was assessed at EUR 7-14 billion, but this figure is pieced together of tens or hundreds of thousands of decisions of private investors to introduce or not money in Romania, and each has a judgment of his own.
Yet essential for each and every one is the country’s creditworthiness. See how much they changed their heart after the agreement with the IMF was signed? In other words, money attracts money.
When it became obvious that money was in place, feelings about Romania changed,” said the BNR governor.
Isarescu remarked that there has been intense mass media coverage of the issue in this period, particularly during the crisis peak, from Christmas through Easter.
„There was a lot of computing, of adding up… sometimes not even I could not comprehend what the debt calculation was based on. They were adding the short-term with the long-term debt, deliberately seeking an outcome higher than the BNR reserve.
Allegations were that half of the reserve is actually not ours, but belongs to commercial banks. It was indeed taken from commercial banks, but it was ours,” Isarescu concluded.