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BNR's Isarescu: June data to show 2-pct price drops; hopefully, people do not see it as deflation

June inflation data will show a drop in prices by more than two percentage points from May, with the annual inflation index expected to reach minus one point something per cent, but the important thing is for people not to perceive the process as deflation, Governor of the National Bank of Romania (BNR) Mugur Isarescu told a symposium devoted to the 10th anniversary of Romania's new leu (RON).

"In some days' time, the inflation index is expected and we will see there a drop by more than 2 per cent in prices. These are our calculations and we are usually not wrong about it. So there is a fall by two percentage points in one month, although there has been talk of rising bills as a result of the leu depreciating. And the annual index, currently at 1 point something, will probably fell to minus one point something. We have counted on nobody calling this deflation," said Isarescu.

He explained that deflation essentially means continual falling prices that discourage consumption as consumers expect further falls.

"That was the situation that triggered negative interest rates in Western Europe. But in Romania, consumption advances 6-7 per cent in annual terms, and so does investment. That is what we counted on [in our monetary policies] but we left room for an unknown," said Isarescu.

In his opinion, if July, August and September data show falling prices similar to the June's the central bank should have spare measures to counter the situation.

"Wouldn't it be good to be prudent and set aside measures for such an unknown? We do not know how society will react or how the economy will react, and that is why you can find in the BNR releases the word prudence. It is wiser when there is something to give instead of taking away. When you have to take away that means a step backward," said Isarescu.