June 24, 2019 / 1:28 PM / in 22 days

UPDATE 1-Romanian ruling coalition to support cenbank governor for new term

(Adds comment, details)

BUCHAREST, June 24 (Reuters) - Romania’s ruling coalition of the Social Democrats and junior partner ALDE will support central bank Governor Mugur Isarescu for a new term, ALDE leader Calin Popescu Tariceanu said on Monday, dispelling some concerns over the bank’s independence.

Senior Social Democrats had criticised Isarescu for the bank’s decision to hike its benchmark interest rate last year to fight persistently high inflation, worrying markets.

The party also approved a bank tax tied to a cap on money market rates via emergency decree in late December without consulting the central bank, disabling monetary policy and triggering a record bourse sell-off.

The government has since watered down the tax.

“The discussion I had with the prime minister today has led us to the conclusion that we will go with renewing Mugur Isarescu’s mandate, he has our support,” Tariceanu, who is also parliament upper house’s speaker, told reporters.

Isarescu, 69, is the world’s longest serving central bank governor, having led Romanian monetary policy since 1991. The nine-member central bank board’s term expires in October.

Tariceanu said based on parliamentary seats, the Social Democrats would be entitled to nominate four board members and ALDE one, whereas opposition Liberals and Save Romania Union would get two and one appointees, respectively.

The new board will be approved among a slew of other appointments including to the country’s fiscal watchdog and public ombudsman in a special parliamentary session during July 1-5, Tariceanu said.

The Social Democrats have yet to officially confirm their support for Isarescu. The central bank has officially declined to comment.

The party will elect a new leader on June 29. Prime Minister Viorica Dancila took over as interim chief after former boss Liviu Dragnea began serving a prison sentence for corruption in May.

The Romanian leu was up 0.2 percent against the euro at 1255 GMT.

“The news removes concerns over a potential erosion of central bank independence,” ING Romania chief economist Ciprian Dascalu said.

Isarescu has gained a reputation for steady policymaking and a pro-reform stance that helped the country join the European Union in 2007. While not without critics, he has been seen as a factor of stability as the Social Democrats have gone through three prime ministers since 2017.

The new board will not have an easy time. Inflation is expected to remain above the bank’s 1.5-3.5% target this year. Economic growth is set to slow, while the country’s fiscal and current account deficits are rising, fuelled by consumption-friendly public sector wage hikes.

Romania holds a presidential election later this year, and local and parliamentary elections in 2020. (Reporting by Luiza Ilie; Additional reporting by Radu Marinas; Editing by Toby Chopra)

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