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Mugur Isarescu: We are triying to decrease inflation without creating recession in Romania
The governor of the National Bank of Romania (NBR), Mugur Isarescu, on Tuesday stated that the objective pursued both in the past and in the future by the central bank is to reduce inflation without creating a recession in the country, stressing that a first objective refers to price stability.
"Price stability is the most valuable public good that a central bank can give to society. It is a well known fact that in conditions of relative price stability and a reasonable growth objective, in our case 2.5%, with a margin of plus or minus 1%, the economy develops better, there are greater chances to have macroeconomic and financial stability and to have long-term, sustainable economic growth. We will aim, as in the past, to ensure price stability without endangering financial stability. For a long time, until the 2000s, it was believed that ensuring financial stability comes almost automatically with ensuring financial stability. The crisis of 2008-2009 proved that this thesis is not correct," claimed Mugur Isarescu at the hearings of the joint parliamentary committees on budget-finance.
According to him, currently, "the main imbalance in Romania - financial and economic - is the fiscal-budgetary deficit, which is reflected almost like a mirror in the external deficit - somewhere between 6 and 8%".
The governor of the BNR estimated that, in the next period, inflation will stabilize around 2.5%, plus/minus one percent.
"We believe that in the next period, let's say 12-16 months, inflation will stabilize within the margins established by the BNR policy - 2.5% is our target, plus/minus 1%. Of course, inflation depends on many factors. ( ...) While reducing the inflation to 6%, now 5%, and probably below 5% this autumn, we noticed a greater restraint. Let's say that inflation in Romania was more stubborn. The main factors contributing to this are linked to the increase in income over productivity. The central bank is not against the increase in income, this is the goal of economic growth, but there must be a correlation with the increase in productivity, otherwise the differential (...) leads to either an external deficit, excess demand, or higher inflation, or both, and the danger is a price-salary spiral. (...) I hope that in the next eight months, the influence will go towards the objective of 2.5% plus or minus one percent," the BNR governor said.