Yesterday we were presented with the list of the new Romanian Government. Until the government’s program will be released I want to express a concern: NBR independence.
The proposed Minister of Finance is the Deputy Governor of the Central Bank who will suspend his contract until November 2012.
However, isn’t this creating a situation where the NBR will be compelled to accommodate economic policies that would boost short term growth at the cost of higher inflation? Or, would the NBR be as quick as before to increase rates, while the economy was growing, in order to control inflation? We are entering a very dangerous situation for the NBR independence. I wonder how international markets will perceive this. The main risk I see here is the abandonment, explicit or implicit, of the inflation targeting regime.
Nevertheless, a first test of commitment to inflation targeting will be taken by the NBR today. Inflation forecasts supports further cut of the key policy rate. But the exchange rate does not. My assumption about NBR is that it is mostly targeting the exchange rate. If I am right then NBR will not lower the key policy rate today from 5.25% to 5%.