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Croitoru (BNR): Inflation target of 3% is more suitable for Romania than 2%
An inflation target of 3% is more suitable for Romania than 2%, as the real interest rate continues to be stimulative for economy, said Lucian Croitoru declared on Tuesday.
“My opinion is that an inflation target of 3% is more suitable than one of 2%. We have 2.5% . The real interest rate is the central bank rate (2.75%), minus the anticipated inflation (2.5%). Therefore 0.25% is still a stimulating interest rate. We hope we will not have to reduce inflation more, because it would be a positive sign according to which Romanian demand continues to drop,” Croitoru explained.
He added that prevention is needed to establish an inflation target which should not allow interest rates to enter negative ground, as well as measures meant to stimulate demand and potential. The measures include the increased participation of labour force, investments focusing on transport infrastructure, the clarification of property rights, the in going fight against corruption and the solution of problems in the state sector.
“To stimulate demand and potential we need structural measures leading to the increase of labour force participation and growing productivity. Moreover, we need priorities! I think we need to focus investments on creating transport infrastructure in Romania. Without that Romania will not have productivity which should bring production back. The rights to property must be also clarified. The fight against corruption must continue to get out resources without which economy cannot function. We still have the state sector which is in the center of the accord with IMF. Look at problems Oltchim has and many others,”the counsellor of the BNR governor pointed out.
In his opinion, once these measures are solved a strong middle class will appear, so that democracy in Romania will no longer have problems, and the bases for a less corrupt education could produce real values.
Croitoru presented Romania’s economic evolution since 1990 to the present and reached the conclusion that 2011-2013 is a relevant period considering it is the only period in which the economy functioned without economic bubbles and without infusions of foreign capital. “The average of economic growth in this period is 1.7%. This is the economic growth in Romania if it is not an economic bubble or a financial repression. I don’t think repression is still possible because nobody from abroad would agree,” Croitoru explained.