People worry about price moves; a rise will boost emotions although today’s puzzle lies with prices’ stubbornness to stay too low for so long. But money loss gives them more shivers, pushing most into dire straits when that risk materialises. In an emotional and fretful  environment, any message about the safety of our pockets – the essence of financial stability – may be easily distorted, thereby fanning fears. Sometimes, central bankers’ talk seems too strong, on other occasions too vague for both markets and the public at large. Confronting volatility, uncertainties, mistrust or even panic and scepticism only via the monetary toolkit is not enough. Central bankers are struggling to address some of these issues, to make them understood by using all the modern and persuasive communication methods or tools. Nevertheless, their effort is poorly matched by the fiscal policy and by the often delayed structural reforms. In our case, as the global financial crisis unfolded, it took a while until the loss of confidence in the main actors of the financial industry filtered in to also affect the National Bank of Romania. Thus, a few years ago, the public perceptions started to be influenced by local fake-news  campaigns echoing the ‘post-truth era’ that pointed to the NBR as being ‘the banks’ lawyer’.
Indeed, an even stronger version of this argument is that the very success of the regime contributed to the decline in market participants’ perception of risk and encouraged them in the leveraged acquisition of risky assets. According to this view, the MPC ought to put independent weight on credit and asset price developments and should have kept policy tighter during the years leading up to the crisis. That would have generated an undershoot of the inflation target in the near term but reduced the likelihood of a disruptive unwinding of the financial imbalances further out. The first point to make is that interest rates affect the whole economy through a variety of channels. Raising Bank Rate in order to curb a credit boom would be fine if that credit boom was also associated with excessive demand growth and overheating in the real economy. But that, by and large, was not the case during the years leading up to the financial crisis. Raising interest rates enough to have had a material impact on the credit boom would most likely have resulted in an even higher value of sterling, markedly weaker activity and higher unemployment. Would businessmen, households and Parliament have accepted this as a price worth paying to bring down credit growth with the hope of forestalling a hypothetical future financial crisis? I suspect the answer to this would be No, even though equipped with 20/20 hindsight we might take a different view.