MACROPRUDENTIALITY AND MACROSTABILITY ARE JUST EMPTY WORDS? We are spending like in the "good times" and still doing so on credit

Having heavily involved itself in the political game lately, the Central Bank of Romania seems to be neglecting precisely the main risk factor to macroeconomic stability.

Yes, the worrisome evolution of lending in lei. For over a year now, its annual growth has significantly surpassed that of the economic growth, reaching 12.7% in July 2015, the highest level since February 2009, when the party "party" on borrowed money was still animată.

The "engine" that is causing the speedup of the lending in lei is the lending to households, which has seen an annual increase of 26.5%, amid an increase of almost 121% of mortgage lending. In August 2014, the annual growth rate for mortgage lending has reached a historic high, of 210.4%.

After significant contractions in 2010 and 2011, consumer lending has returned to life, in terms of the annual growth, at the end of last year. The jump of the annual rate of growth from approximately 1%, in November 2014, to almost 22% in December 2014, was followed by a speed-up to 29.7% in July 2015.

The explosive rise of lending in lei has caused economist Florin Cîţu to warn that "the monetary policy is once again stimulating credit-based consumption", as the monetary authority of the state seems to have forgotten the lessons from the acute period of the crisis.

Long before the central bank heads became today's "stars" in nowadays' press, William McChesney Martin, chairman of the Fed between 1951 and 1970, said, in a press conference in 1955, that "the Federal Reserve has to be just like a chaperone to teenagers, who restricts access to drinks when the party is heating up".

Unlike those times, not only do central bankers keep the glasses full, but they are also "boosting" the drink with all kinds of "energy drinks". So is the NBR, by keeping the interest at a historic low, which is very far from the conditions in the real economy.

In a recent statement, Alan Greenspan, former chairman of the Federal Reserve, said that the "normal interest level has always been between 4% and 5%". Greenspan was referring, of course, to the monetary conditions in the United States.

Whereas, in the most developed economy of the world, the interest rates should be above 4%, how big would they have to be in an economy like ours, especially amid the acute need to rebuild the national capital?

Following the trend and its indications on a European level, the government has approved the draft law concerning the macroprudential oversight of the financial system in the second half of July 2015.

As shown in the press release, "the National Committee for the Prudential Oversight will be made up of representatives of the National Bank of Romania, of the Financial Oversight Authority and of the Government, and will work as a inter-institutional cooperation structure, without legal personality, with the role of ensuring the coordination of the macroprudential oversight on a national level", and its president will be the governor of the NBR.

Even if this committee has not yet formally begun its activity, what is preventing the National Bank of Romania from acting to prevent a new lending bubble? Would it be the precarious state of the national banking system, wherein a series of tensions over the raising of the interest rates exists?

In the context of the disputes concerning the approval of the new Fiscal Code, amid the announcement of the proposals to significantly raise the wages in the public sector, representatives of the National Bank have hinted that that the institution would be forced to take measures to tighten the monetary policy, one of them being to raise the policy rate.

Unfortunately for the "spearhead" of macroprudentiality, no other "threat" of the NBR has been as empty. The reason is simple: the Romanian banking system in Romania has a significant portfolio of government securities, without having the required capital (author's note: the risk weight of the government bonds is zero), and raising the interest rate would lead to significant losses for the banking system, just as the monetary and oversight authority is ready to proclaim its final stabilization.

Early last month, Mugur Isărescu, the governor of the NBR, compared macrostability to health. "You only realize how important it is when you lose it", the governor said, and the "repairs, the treatments are painful, just like it happens with health".

Given the primordial role of the NBR in the National Macroprudential Supervision Committee, the measures for keeping the "health" of the economy should have already been visible, especially amid the increase in foreign imbalances and the new conditions on the international markets.

Are macroprudentiality and macrostability just empty talk or are they just "ideals" in the name of which the right to economic development is denied?