Moreover,  BIS Review 5/2010  11  foreign-currency-denominated loans (Chart 6) posted a fast-paced growth and any rapid and excessive depreciation of the domestic currency would have generated negative chain reactions across the banking system. Hence, the central bank’s policy on forex market intervention was further steered in this new environment by the philosophy that a high volatility of the exchange rate is detrimental to the inflation target as well as to the financial soundness of the real and financial sectors. A small emerging economy with a significant openness is exposed on an ongoing basis to the threat of capital movements likely to adversely affect the stability of the financial market, the foreign exchange market in particular. Firstly, the NBR’s interventions in the foreign exchange market were meant to avoid an excessive weakening of the domestic currency, while also linking the level and the pace of the depreciation to the progress in the current account adjustment. With this goal in mind, the central bank monitored the developments in the real effective exchange rate of the domestic currency, along with the pressures on external competitiveness stemming from wage bargaining. Secondly, foreign exchange market interventions were calibrated in line with developments in foreign currency reserves. The foreign currency reserves resulting from market interventions during the overappreciation period, to which added the funds received under the financing arrangement concluded with the IMF, the EU and other international financial institutions, enabled the central bank to support the domestic currency; despite these interventions, official reserves stood constantly at safety level.
Asset Prices and Monetary Policy (Chicago: University of Chicago Press, 2006). González-Páramo, José Manuel: “Progress towards a Framework for Financial Stability Assessment”, speech entitled “Statistics, Knowledge and Policy” and delivered at the OECD World Forum, Istanbul, 28 June 2007. Haugland, Kjersti, and Vikøren, Birger: “Financial Stability and Monetary Policy – Theory and Practice”, Norges Bank, Economic Bulletin, No. 1, 2006. Isărescu, Mugur: “Price Stability and Financial Stability” dissertation on the occasion of being awarded degree of Doctor Honoris Causa by Piteşti University, 8 December 2006. Isărescu, Mugur: “Economic Reflections”, Romanian Academy, Bucharest, 2007. Isărescu, Mugur: “Monetary Policy Issues in an Emerging Economy. The Case of Romania”, speech delivered on the occasion of being awarded the academic degree of Corresponding Member of the “Real Academia de Ciencias Económicas y Financieras” in Spain, Barcelona, 21 February 2008. Isărescu, Mugur: “International Financial Crisis and Challenges to the Monetary Policy in Romania”, dissertation on the occasion of being awarded degree of Doctor Honoris Causa by Babeş Bolyai University in Cluj-Napoca, 25 February 2009. BIS Review 5/2010  17  Isărescu, Mugur: “Nine Lessons from the Current Financial Crisis”, speech delivered during the session titled “What Lessons Can Be Learned from the Current Economic Crisis?”, organised by the Economics, Legal and Sociology Department within the Romanian Academy, in co-operation with “Costin C. Kiriţescu” National Institute of Economic Research and the “ESEN Reflection Group” Romanian National Committee, Romanian Academy, Bucharest, 14 April 2009.