Given the fact that the policy rate is an inadequate tool to deal with overleverage, excessive risk taking, or apparent deviations of asset prices from fundamentals, there are other instruments at the policymaker’s disposal: countercyclical regulatory tools. Thus, if leverage appears excessive, regulatory capital ratios can be increased; if liquidity appears too low, regulatory liquidity ratios can be introduced and, if needed, increased; to dampen housing prices, loan-to-value ratios can be decreased; to limit stock price increases, margin requirements can be increased. As I said earlier, the NBR has always had to juggle the “three aspects of stability” and that called for the deployment of alternative instruments, such as the full use of the reserve requirement ratios and recourse to administrative measures. Reserve requirement ratios were increased up to 20 and 40 percent for lei- and forex-denominated liabilities respectively, and the list of administrative measures included: enforcing a maximum loan-to-value ratio, introducing debt service ceilings relative to households’ monthly disposable income, setting limits on banks’ forex exposure vis-à-vis unhedged borrowers, using differentiated coefficients in stress tests (higher for exposures to EUR than lei, with even stricter coefficients for CHF- and USD-denominated credit). Even though at the time our modus operandi was seen as deviating from the orthodoxy of central banking, during the global crisis or in its aftermath, macroprudential instruments are now part of the mainstream and forex interventions re-entered the arsenal of many central banks, including some of those using a free floating regime before the crisis.

It is expected, however, that central banks will make more explicit their concern for all the “three aspects of stability” in their policy decisions, realising that price stability and financial stability are much more intertwined than we used to think. I believe this development has farther-reaching consequences when it comes to the future of central banking. I can easily imagine, some years down the road, a more “normal” world in which unconventional monetary policy tools are a thing of the past, since their relevance is ultimately circumstantial, but I cannot imagine a future where the explicit concern for financial stability and the macroprudential policy are not central banking fixtures. To be frank, the NBR has never had the luxury of being concerned exclusively with price stability and interest rate setting in the belief that financial stability and exchange rate stability will follow. In a world with freely moving capital, the idea of being able to manage aggregate demand exclusively via interest rates would have been an illusion: the interest rate hikes required to manage aggregate demand and anchor expectations would have entailed further capital inflows and an unsustainable nominal appreciation, thus boosting foreign currency lending and creating vulnerabilities on the financial stability front. That is why, when introducing inflation targeting in 2005, the NBR opted for the “light” version of the strategy, which meant retaining the managed float feature of the exchange rate regime.