Romania Central Bank Sees Rising Capital Inflows On Medium-Term

05.25.2011 By Dragu Georgeta Florentina

Romania is likely to begin a new economic cycle, when massive capital inflows could trigger a higher volatility of the exchange rate, central bank governor Mugur Isarescu said Wednesday.

"The difficult situation in Greece could somewhat mitigate the process, but I think that we will witness large capital inflows on the medium-term. Of course, the central bank will try to temper the exchange rate's volatility, but this is not a must," Isarescu told an economic seminar.

He said the central bank's role in influencing the exchange rate is limited. Large capital inflows lead to surplus reserves and the central bank has already excess foreign reserves, Isarescu added.

"Creating liquidity through direct interventions is an illusion and no central bank can do it.

We'll try to discourage a high volatility of the exchange rate, but it's highly important that product competitiveness be ensured not only through prices, but also through productivity, low production costs, adequate promotion and finding new international markets," Isarescu said.

Early May, Isarescu said the central bank targets a stable exchange rate of the leu versus the euro, even if a stronger leu would help the disinflation process on the short term.

"The leu's appreciation can be benefic on the short-term, but we are not interested in a short-term effect, but in a balanced exchange rate. We don't believe that an excessive appreciation is sustainable," he said.