Chart 9  Liquidity-providing operations lei billion, stock, daily averages  18 16 14 12 10 8 6 4 2 0  liquidity-providing operations (repos and swaps)  Sep.09  Aug.09  Jul.09  Jun.09  May.09  Apr.09  Mar.09  Feb.09  Jan.09  Dec.08  Nov.08  Oct.08  lending facility  Source: National Bank of Romania  Therefore, it may be asserted that foreign exchange market interventions proved useful not only in keeping the exchange rate within a range consistent with macroeconomic fundamentals, but also in ensuring optimal money market liquidity management. The National Bank of Romania was not the only central bank to opt for the managed float of the domestic currency. As regards forex market intervention as part of the instrument array used by central banks all over the world, it is noteworthy that the relevance of this tool increased after the onset of the financial turmoil. Central banks in Central and Eastern European countries that have in place a flexible exchange rate system (the Czech Republic, Poland, Romania and Hungary) issued in February 2009 a joint statement whereby they openly declared themselves against an excessive depreciation of local currencies which could not be substantiated by economic fundamentals and could produce a destabilisation, committing themselves to move towards fighting such a depreciation. The exchange rate developments of the said countries’ currencies are presented in Figure II.
It is up to policy-makers to draft policy measures during such an episode in order to influence both the level where a U-turn occurs and the slopes following the end of an episode of sizeable capital inflows. I will show in the following section that the policies envisaged by the arrangement Romania signed with the EU and the IMF are aimed at smoothing out the slope of the trends of the abovementioned indicators so that the necessary adjustments unwind at a reasonable pace, without destabilising the economy. BIS Review 5/2010  5  3. Case study – Romania  3.1. The period of massive capital inflows  Foreign capital inflows in Romania have picked up since 2004. The current account deficit widened from 8.4 percent of GDP in 2004 to 13.5 percent of GDP in 2007 and to 12.3 percent of GDP in 2008. The medium- and long-term external debt of the private sector posted an almost twofold increase (Chart 1), from 12.9 percent of GDP in 2004 to 25.6 percent of GDP in 2008.