Alegerea regimului de politica monetara n tarile aflate n proces de aderare la Uniunea Europeana: nt

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Conference Productivity, Investment and
Growth Sofia, May 17-18, 2004
ROMANIA
Romania Recent Macroeconomic Developments and
Monetary Policy Coordinates

Wilhelm Salater Senior Economist
NATIONAL BANK OF ROMANIA
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Recent Macroeconomic Developments
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Looking Back at 1999

• Economic growth -1.2
• Inflation rate 54.8 (December/December)
• Fiscal deficit 1.8 of GDP (but quasifiscal
  deficit larger)
• Current account deficit 4.0 of GDP

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2000-2003Sustainable Disinflation and Growth

• Gradual disinflation
• Robust economic growth

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2000-2003Sustainable Disinflation and Growth

• Gradual disinflation
• Robust economic growth
• Significant, but sustainable, current account
  deficits
• Moderate fiscal deficits and low public debt

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Gradual Disinflation

• Smooth disinflation path, without trend reversals
• Gradual approach chosen as
• prices, tariffs and wages have recorded major
  adjustments
• external equilibrium has not yet been
  consolidated
• Supported by a consistent policy mix
• prudent monetary policy
• cautious fiscal policy
• sustainable income policy
• structural adjustments

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Robust Economic Growth

• Higher GDP growth rates than in most CEE
  countries
• Driven initially by external demand and
  afterwards by domestic demand (on the back of
  rising wages and loans)

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Moderate Fiscal Deficitsand Low Public Debt

• The official financial accounts have been
  maintained under control
• Fiscal deficit declined gradually from 4 of GDP
  in 2000 to 2.3 of GDP in 2003
• Quasifiscal losses are still significant (the
  quasifiscal deficit is estimated to hover around
  2.5 of GDP)
• The level of public debt (around 27 of GDP at
  end-2003) compares favourably with that of other
  CEE countries

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Current Account DeficitsSignificant, but
Sustainable

• Moderate current account deficits in 2000 (3.7
  of GDP) and 2002 (3.4 of GDP) due to
• Strong export expansion
• Supportive exchange rate policy
• Beneficial influence of substantial current
  transfers surplus
• Larger-than-foreseen current account deficit (5.8
  of GDP) in 2003 due to
• Weak external demand
• Substantial investment growth
• Rising household demand for imports
• No financing difficulties
• Satisfactory coverage through FDIs - although
  larger productivity-enhancing FDIs desirable -
  and MLT external borrowings
• Adequate level of official forex reserves
  (covering 3.5 months of imports)
• Low foreign debt

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2004 Official Forecasts

• Economic growth 5.5
• CPI inflation rate 9 (December/December)
• Fiscal deficit 2.1 of GDP
• Current account deficit 5.5 of GDP

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II. Monetary Policy Coordinates
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Major Guidelines

• Single-digit inflation rates in 2004 and in the
  years to come
• Interest rate policy firm and transparent
• Exchange rate policy managed floating regime
  preserved
• Inflation targeting introduction envisaged for
  2005
• Expected timing of euro-area entry 5-6 years
  after EU accession

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Interest rate policy

• The current policy rate is high enough to
  encourage savings and to smooth credit expansion
• Gradual downward adjustment of the policy rate is
  envisaged once the disinflation trend has been
  confirmed
• Interest rate policy gains in transparency

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Exchange rate policy

• The managed floating regime avoids excessive rate
  fluctuations
• Central bank foreign interventions tend to be
  less frequent and ample
• Euro link gets tighter the current composition
  of the currency basket is EUR 75 - USD 25
• The preferred range of real exchange rate
  appreciation (2-4 percent) supports disinflation
  without endangering external competitiveness
• The real appreciation generated by the
  Balassa-Samuelson effect is not counteracted
  through exchange rate policy

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Inflation targeting

• The monetary policy regime switch envisaged for
  2005 (after enhancing central bank credibility
  and inflation forecast capability)
• Increased transparency and accountability
  Inflation Reports already published (semiannual
  frequency)
• Monetary policy firmly committed to pursue the
  inflation targets and relieved of supporting
  conflicting macroeconomic objectives
• Higher exchange rate flexibility (decreasing role
  of exchange rate as BoP adjustor)
• Harmonization of monetary and fiscal policies
  (fiscal dominance on the wane)
• Sound banking sector (but not yet fully-fledged
  financial system)

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Macroeconomic Context Before Adopting Inflation
Targeting
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The road towards euro-area

• Sped-up nominal convergence, but without hurting
  the process of real convergence

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The road towards euro-area

• Sped-up nominal convergence, but without hurting
  the process of real convergence
• EU accession prospects in 2007
• ERM II entry not too soon (3-4 years after EU
  accession)
• ERM II stay as short as possible (2 years)
• Euro-area entry when ready (5-6 years after EU
  accession)