Who cares about the NBR’s independence?

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%.

7 thoughts on “Who cares about the NBR’s independence?

  1. Very good point!

    We should not forget that NBR and Government are institutions of the Romanian state, which in turn is controlled by political parties. The new leading party decided, and NBR agreed, that they have to collaborate in order to accommodate a redistribution of wealth among people. The aim is to safeguard a four years governmental mandate.

    The independence of NBR is just a myth.

    I think that NBR should have an immediate statement condemning such a political inference and asking Mr Fl. Georgescu to make a clear cut public decision choice.

    Note that the Vice Governour is proposed as Vice Prime Minister !
    Is this appropriate with NBR independence ? Can we foul foreigners with this ?

  2. Was the nbr ever independent? Can you be a governor for over 20 years, have some very nasty bankruptcy cases, hyperinflation, subsidise the public deficit, and call yourself independent?

  3. These are happening like in Hungary but in reverse order.

    In Hungary the gouvernment wanted to appoint a member in the National Bank Board. In Romania a NBR member is appointed as Vice Prim Minister member of Government.

    I just wander what IMF and EU will react ?

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