Mugur Isărescu: Unconventional monetary policies and financial stability – implications for banks and financial markets Address by Mr Mugur Isărescu, Governor of the National Bank of Romania, at the joint CIGI (Centre for International Governance Innovation) – Oliver Wyman conference, Rome, 15 December 2015. *  *  *  The address was presented by Governor Mugur Isărescu during the panel session “Unconventional monetary policies and their impact on financial markets”, which also included the following members: • • • • • •  Domenico Lombardi, Director of the Global Economy Program, CIGI Malcolm Knight, Distinguished Fellow, CIGI (former General Manager of the BIS) Lorenzo Bini-Smaghi, Chairman, Société Générale (former Vice-President of the ECB) Lorenzo Codogno – Professor in Practice European Institute, LES Pierpaolo Benigno, Professor of Economics, LUISS University Carlotta de Franceschi, Co-Founder and President, Action Institute  Participants included, among others: • • • • • • •  Robert Ophèle, Deputy Governor, Banque de France Dimitar Bogov, Governor, National Bank of the Republic of Macedonia Korbinian Ibel, Director General, Micro-Prudential Supervision IV, ECB Margarita Delgado, Deputy Director General, SSM, DG1, ECB Matthew Elderfield, Head of Compliance, Lloyds Bank Carlo Corradini, Member of the Supervisory Board, Intesa Sanpaolo Pierre Siklos, Senior Fellow, CIGI  Ladies and Gentlemen, It is an honour for me to address the audience during this conference on unconventional monetary policies.
But probably the most striking unconventional feature of our monetary policy back then was the active recourse to reserve requirements, the rates of which were increased to levels exceeding by far those of any other central bank in the EU: 20 and 40 percent for lei- and forex-denominated liabilities respectively in 2006. However, taking into account that studies published even before 2006 considered the pure IT framework as not necessarily the most suitable for an emerging economy, one might think that the NBR’s departure from the mainstream was less significant. Specifically, the NBR opted for  2  BIS central bankers’ speeches  a “light” version of inflation targeting, which meant retaining the managed float feature of the exchange rate regime, which implied smoothing out excessive volatility, without defending a certain level of the exchange rate or preannouncing interventions. The actual form inflation targeting took in Romania thus matched the “managed-floating plus” concept introduced by Goldstein in 2002, considered the most suitable choice for an emergingmarket economy involved in the global capital market, as it combines the managed float part with an inflation targeting monetary policy strategy and an active pursuit of measures to limit the degree of currency mismatches in the economy. Subsequently, this “managed-floating plus” approach gained acceptance, especially during the global crisis, and now forex interventions are part of the arsenal of many central banks, including some of those using a free floating regime before the crisis. 3. Did markets and banks react to the departure from the paradigm?