The Romanian money supply is actually falling

I am working on a presentation on the Romanian interest rates and I thought to share the following graph with you. It shows the overnight deposits (OD) at the NBR versus overnight deposits at the BNR minus the REPO operations. Why is this important?

Money Matters, Romania’s case

This is my contribution to today’s seminar at the National Bank of Romania: Money Supply and Inflation.
My main conclusion is that much like the FED in the 30s the NBR misjudged the effect of the economic crisis and the stance of the economy and tighten monetary policy. The result was recession and short circuiting of the credit channel. I attribute the wrong assessment to too much reliance on the output gap and too many objectives besides stable prices – stable exchange rate and financial stability.

Current way of injecting liquidity will not lower long term rates

NBR delivered another rate cut today from 5.75% to 5..5%. It is the third consecutive cut in the key rate and a good moment to see how has this easing cycle transferred into the real economy. The main question is if these rate cuts get to the real economy. As you will see not immediately and definitely not via lower interest rates.
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Selling bonds to households, easier if one understands the monetary system

Since the middle of October the Romanian government woke up to the reality around it: funding will be more expansive, if you find it. It has tried to push for some capital control (force banks to keep their current exposure in Romania) but it has not worked. The latest idea, which is in fact an old re-heated one, is to sell government bonds to Romanian citizens.