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Letters between Dragnea and Isarescu, revealed. Tough explanations

After the talks with the Governor of the National Bank of Romania, Mugur Isarescu, PSD leader and Chamber of Deputies Speaker, Liviu Dragnea, has made public on Thursday the exchange of letters between him and the governor. In the correspondence, the PSD chairman suggests that the deepening of the macro-economic imbalances has nothing to do with the government policy, focused on wage increases and even accuses the BNR of “seeding mistrust”.

In his reply, Isărescu says that without the BNR interventions in the sense of increasing the monetary policy rate, the current inflation would have been higher and the devaluation of the national currency would have taken a more pronounced route.

“It is erroneously considered that the inflationary push arises because of tax and income policies. … As I believe you know, the main causes that have triggered inflation are not caused by the Government action. As Speaker of the Chamber of Deputies, I am asking for a very technical and substantiated motivation regarding the repeated increase, since the beginning of the year, of the monetary policy rate,” Liviu Dragnea wrote in the letter sent to Mugur Isărescu.

In a reply dated March 28, Mugur Isarescu says he agrees on a dialogue is needed between Parliament, Government and BNR, in order to intertwine the monetary and Government policies, capital.ro reports.

“The members of the BNR Board have analysed your letter regarding the development of the main macro-economic indices and on the mix of economic policies. We answer your invitation for constructive dialogue between Parliament, Government, BNR on the basis of Law 313/2004 and the regulations on central banks of the Treaty on the Functioning of the European Union, in view of achieving better conjugation between the Government policies and BNR’s monetary policy,” the letter from Mugur Isărescu reads.

“For the return of inflation to the forecasted level in December 2018 of 3.5%, the upper limit of the target range, a gradual strengthening of the monetary policy was needed starting in the second half of 2017, first by narrowing the interest corridor closer to the monetary policy rate. The strengthening was also imposed by the market conditions. Finally, the increase of the monetary policy rate was determined both by the acceleration of inflation and by the fact that the results of the monetary policy appear with a certain delay,” the letter reads.

BNR says that if it did not react in the first two months of the year, the inflation risk would have increased and the RON would have further depreciated.

“A lack of BNR reaction, both in the first two months of the year and in the future, would increase the risk of anchoring the inflationary expectations to a higher level, as the companies, including international institutions, would interpret the lack of BNR reaction as a tacit acceptance, over the medium and long term, of the respective level of inflation. Also, the risk of further RON depreciation would have increased,” the BNR also said.


About Valeriu Lazar