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This is the moment of truth for Central Bank Governor Mugur Isarescu: will he help commercial banks or will he help exporters? For Isarescu the target is clear: keeping inflation down so as to bring Romania in the Euro-zone within the agreed upon time-frame of 2013.
It is clear now that the economy will choke up in the next nine months if the Central Bank will not bring down the leu against the Euro. A stronger leu will obviously lower the performance of Romanian exporters, which in turn will make for less tax income to state coffers, hence less revenues to fund the infrastructure, the health and the education systems.
Therefore, the best way to go now, for the Central Bank would be to bring down the leu to 4.3 lei to the Euro, the give a boost to the economy.
However, this course of action would hurt the commercial banks, putting a hold to their crediting activity, as well as the population, which would have to pay more for the Euro denominated credits it took.
The current situation is pretty similar to the one in 2007, when speculators attacked the Romanian currency in the aftermath of its EU accession and Lehman Brothers' bankruptcy. The Central Bank fought back then with vacuuming up the lei from the market, to starve speculators, in hope they would get tired with waiting and go away, which they did.
However, this was not without repercussions: Romanian economy was left to deal with huge inter-banking interest rates which made credits too expensive to afford.
This time around the leu is going up against the Euro, because speculators attack the Euro in the aftermath of the Greece economic and financial problems. And the Euro is not going to be well for a good while, since the economies of Italy, Ireland, Portugal and Spain are also in trouble.
Therefore, there is no domestic merit in a stronger leu. This is also something we should not wish for, as exporters will again choke up. So far, private owned exporting companies were supported by the state-owned energy sector.
Translated by AAP
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