Bucharest, April 29th 2020  Mugur Isărescu, Governor of the National Bank of Romania Dear colleagues,  Early this year, we found ourselves during challenging times, under an awful threat of medical nature, which has affected our lives, as well as the global economy. Many sectors have experienced sudden stops. The negative effects of COVID-19 pandemic have required the adoption of comprehensive and coordinated packages of measures in order to respond to lockdowns and deterioration of economies, trying at the same time to establish grounds for future opening up and strategies for restarting the activities. Recent history has shown us that central banks have always exerted their full functions within mandate to support countries and people to overcome the economic effects of wars, catastrophes and disasters of any kind. These trying times make no exception. The outstanding cooperation within the framework of the prestigious Bank for International Settlements, of its remarkable members and management, will stand proof for deepening our commitments that bind us all. On a more positive note, I wish to let you know that the National Bank of Romania celebrates today its 140 year anniversary. The day of April 29th has a strong historical significance. Since mid19th century, the Romanian society had witnessed swift, in-depth social, economic, political and institutional changes. So, steps were taken to found a central bank, drawn on the statutory principles of Banque de France and the National Bank of Belgium. On April 29th 1880, the Law on the establishment of a discount and circulation bank, i.e.

These uncertainties and complexities, of course, are the reason for monetary policy committees and heavily staffed central banks. If monetary policy is complex under normal circumstances, the complexity is multiplied in a financial crisis, especially a crisis as deep as the one that Iceland has been going through. Some of the markets that are important for monetary policy transmission stopped functioning to a substantial degree. Financial institutions became impaired, and they responded differently to the Central Bank’s monetary policy instruments than they did before the crisis. The relationship with the rest of the world changed. The link between exchange rates and interest rates weakened. And expectations became seriously unstuck. Matters were further complicated because we had to change the rules of the game in response to the crisis; for example, by imposing capital controls. It is important to remember this when evaluating monetary policy in Iceland under the current circumstances. At present, the monetary policy framework is defined by the economic programme agreed between the Icelandic Government and the International Monetary Fund (IMF). The other key elements of the programme are the medium-term fiscal sustainability plan and the financial market restructuring plan. According to the programme, the most important task of monetary policy is to promote exchange rate stability. One reason for this is the currency crisis that accompanied the financial crisis, pushing the exchange rate far below levels previously thought possible, let alone desirable. This currency collapse fuelled inflation, of course, and amplified the debt crisis faced by households and businesses.