Monetary Policy Cannot Be Eased Until Fiscal Constraints Become Effective – Romanian Ctrl Bker

Isarescu said the central bank supports the budget draft drawn up by the Government, especially as regards shifting public spending from goods and services, and personnel, to investments, and as regards the revenue policy.

Romania’s Government approved Thursday the 2009 budget draft that was Friday sent to the Parliament for debates.

The Government opted for an austerity budget, trying to reduce the budget deficit to 2% of the gross domestic product, from last year’s 5% of the GDP gap. It allotted 20% of the budget revenues for investments, mainly in infrastructure works, and cut the personnel and goods and services spending.

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Isarescu admitted that Romania’s central bank monetary policy can be considered restrictive if one regards the high minimum required reserves ratios.

However, Isarescu reiterated the idea that the "highly blamed" administrative measures are currently protecting the Romanian economy and the banking system.

On Wednesday, Romanian central bank cut the key rate by 0.25 percentage points to 10%, but kept unchanged the minimum required reserves ratios on both leu-denominated and foreign currencies liabilities at 18% and 40%, respectively.