One of my themes regarding Romanian monetary policy is that transmission mechanism is not working. It did not work before 2008 and it has literally stopped since then.
The recent IMF Country Report on Romania brings support to my view. This is what it says at page 21:
“Weak monetary policy transmission. Despite tightening monetary policy in 2007-08, the NBR’s ability to stabilize inflation was hindered by weak transmission of policy rates due to two key factors: (i) High FX lending (63 percent of the total), occurs at rates closely linked to external factors such as the EURIBOR rate and the sovereign CDS spread rather than to domestic monetary policy; and (ii) a wide interest rate corridor of ± 400 b.p. around the policy rate (between the NBR’s deposit facility and credit facility rate) allows for higher volatility in the interbank rate and greater decoupling of the money market rate from the policy rate. In periods of excess liquidity, the money market rate has been very close to the deposit facility rate, implying a much looser monetary stance than what the policy rate signals.”