Reports

The economic picture of 2023 was dominated by a series of major intertwined and mutually-influencing themes, such as the geopolitical tensions, the slowdown of inflation globally and the frailty of the post-pandemic economic recovery. The evolution of the war in Ukraine remained deeply unpredictable and its overlapping with the very complicated situation in the Middle East warrants a further cautious stance of economic policymakers, in a potential scenario of short- or medium-term risks materialising. In this uncertain macro-financial context, the conditions that favour the normalisation of the international economic environment seem to take shape starting 2023.

The war launched by Russia against Ukraine, the largest military conflict in Europe since the end of World War II, was the prevailing issue of 2022. After two years marked by extraordinary uncertainty as a result of the pandemic, the outbreak of such a full-scale war in Europe took the world economy by surprise. The latter was still vulnerable amid the policies adopted in order to fend off the effects of the health crisis, and the shock waves from the war – especially in the energy and agri-food markets – put an additional strain on global economic recovery and revival. The record leap in natural gas prices was reminiscent of the 1970s energy crises. Even though Romania enjoys a privileged position within Europe’s energy architecture, with most of the domestic gas demand being accommodated by the country’s own production, a materialisation of such adverse scenarios – which included the temporary suspension or the rationing of energy supply to households or industrial companies – could have exerted a significant impact on European economies, Romania’s main trading partners. This turmoil overlapped with a context already marked by high inflation, fuelled particularly by energy market tensions ascribable to pre-war issues.

The international macro-financial environment was marked by the evolution of the COVID-19 pandemic during 2021 as well, with the authorities further taking measures to mitigate the identified vulnerabilities and address new challenges. On the domestic front, the prudent stance of macroprudential policy materialised in an increase of countercyclical capital requirements, given the high levels of liquidity and profitability indicators of the banking sector, which allow capital conservation, without creating lending constraints and hindering eligible borrowers’ access to credit.

The year 2020 was marked by the outbreak of the COVID-19 pandemic, which led to major changes in short-term risks to financial stability and heightened some of the existing vulnerabilities of the global economy. On the domestic front, the authorities stepped in promptly to cushion the potential financial effects of the public health crisis. From a prudential perspective, the National Bank of Romania decided to allow credit institutions to temporarily use the capital buffers built up previously, while keeping in place the legal requirements for such flexibilities.

In the context in which the level of systemic risk to financial stability in Romania follows an upward trend, generating external and domestic vulnerabilities, a prudent macroprudential policy stance was adopted, primarily by keeping in place the measures concerning borrowers and the capital reserves built up in previous years. The NCMO activity materialised in assessing the need to recalibrate or implement the macroprudential instruments at its disposal (the capital buffers), as well as in the setup of inter-institutional working groups.

The macroprudential policy in Romania was characterized by the implementation of prudential measures concerning borrowers, to simplify households’ access to loans and safeguard average- and below-average income earners. Among the measures implemented to achieve the national macroprudential objectives, we mention those related to limiting the borrowers’ indebtedness level, while conducting an assessment of the impact of credit institutions’ funding plans on the flow of credit to the real economy.

The main objective of the National Committee for Macroprudential Oversight Report is to inform on the macroprudential measures taken by the NCMO with a view to safeguarding the stability of the national financial system. The analysis presents the instruments used to render macroprudential policy more effective, as well as a series of recommendations issued by the NCMO during 2017.