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Isarescu: Inflation pressure persists

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The National Bank of Romania (BNR) is not jubilant and does not pride itself for having won the war, it's just a battle victory, as inflation is starting to go down, but inflationary pressures persist, governor of the National Bank of Romania (BNR) Mugur Isarescu said on Wednesday at the presentation of the Report on Inflation.

"We have significantly higher production costs. To prevent them from translating into inflation, in price rises, they must be counterbalanced by productivity. There are no signs of a productivity fall in Romania until now, but pay heed that productivity gains must be at least equal, if not higher than cost increases or exogenous costs, for things to stay balanced. Otherwise, we have energy cost growth, there is also a significant rise in the unitary labor costs. In time, the economy and the society can assimilate them, but the National Bank is bound to send an alarm signal. This is about fundamental, not short-term balances we have to be very careful to keep," said Isarescu.

He added that the excess of demand has significantly dropped below the level forecast by BNR last year.

"Economic growth is no longer at 7 percent, it is somewhere at 4 percent. We'll see in the coming months. [If] we want higher economic growth, we must stimulate the potential of the economy, not just demand," Isarescu said, cautioning that stimulating only demand, beyond potential, can have just two effects: creating jobs abroad following the increase in imports to cover the excess of demand, and another effect - the generation inflation.

Romania's top banker said that a slowdown is noticeable for wage rises, except for the public sector, "which has again taken to an upward line"; yet Isarescu said he does not want to comment on this aspect.

The National Bank of Romania revised downwards its year-end inflation forecast from 3.6 pct to 3.5 pct, BNR governor Mugur Isarescu said on Wednesday.

For the end of 2019, the central bank estimates an inflation rate of 2.7 percent, down 0.3 pct from the initial projection of 3 percentage points.

Accordbing to Isarescu, the National Bank of Romania does not wish to "choke" the lending's growth, nor the economic growth. "I talked it over with the banks as well. We are looking at the data. Under no circumstances do we want to choke the growth of the lending nor the economic growth. Under no circumstances. We are looking at other countries' experience," Isarescu answered.

The BNR governor explained that the central bank does not wish for anyone to become "a slave" to the bank, through loans that cannot be returned. He added that everyone's wish to have a house is a natural thing, but it cannot be compared to "wanting a piece of chocolate".

"We want to keep it (the lending, ed. n.) in prudent limits and that is our job," the BNR governor said.

Mugur Isarescu added that the discussions with the banks have commenced and that he "is talking with the Government and the opposition" concerning some precautionary measures the BNR wishes to make public in September.

The BNR governor also said that the mandatory minimum reserves need to be reduced from 8 percent to 2 percent, if Romania is to join the Eurozone, this being the money for lending. Isarescu added that issuing this money now would make it reach the foreign exchange market and would belittle the exchange rate.

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