Using moral suasion in monetary policies of emerging economies: the case of Romania

Abstract

In implementing monetary policies, the central banks could resort to moral suasion for influencing the behavior of various categories of economic actors. Among the quite frequent forms of moral suasion applied by the central banks there are forward guidance and the negotiations with commercial banks or other financial institutions. In the case of monetary policies from some emerging economies, various circumstances could bring some particularities to moral suasion. This paper approaches the moral suasion in the monetary policy of Romania during two periods: the transition from socialism to capitalism and the years that followed the adhesion to European Union. At the beginning of transition when, because of the high inflation and of the national currency devaluation, the credibility of the central bank authorities was at a low level, making the forward guidance very difficult. Instead, for the central bank, that was de facto subordinated to the Government it was quite easy to negotiate with state-owned commercial banks. As the reform of the banking system progressed and a relative monetary stability was achieved, the forward guidance became an important tool of the monetary policy, especially after the central bank had explicitly adopted the inflation targeting. After the transition, in a complex context, the moral suasion remained an important tool of the monetary policy.