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Mugur Isarescu, about inflation: Our medium-term forecast is not yet alarming

The medium-term inflation forecast of the National Bank of Romania (BNR) is not yet alarming, and the increase in electricity and gas prices is transitory, Mugur Isarescu, governor of the National Bank of Romania, said on Wednesday.

"No, we do not expect this at the next monetary policy meeting. The press release does not suggest this, but two things are clear and they ensue both from the release and the analysis of the international situation. The low interest rate period is coming to an end. Now there is under discussion what the economists call the exit .How to get out of this period of rather excessive, strong stimulation of economic growth, including low interest rates. So, to use again a non-Romanian term, but used by us, the timing, the exit and return to normalcy calendar is the most important thing, but it's still under discussion. We don't have any certainty here. The certainty is that the trend is toward normalcy, toward a return to normalcy. And that, of course, depends on inflationary pressures. This is a certain thing. The second certain thing is that we are preparing, that is why we were saying that we use all the tools, and I could say that we have already started with a more serious control of the liquidities on the monetary market, we are preparing for what is to come. Our forecast is that inflation is rising. However, it is related to managed prices that we cannot influence. So the latest increases in natural gas will push the index a bit higher, it is a transitory phenomenon, from this point of view because, for example, the increase in electricity prices will come from the calculation of the consumer price index in January next year. And so our medium-term forecast, the one we are looking at first, is not yet, I say, alarming. I still use the word because there are many factors that act in this sense," said Mugur Isarescu, asked if we can expect the key interest rate to increase at the next monetary policy session.

He mentioned that the BNR will apportion very well the monetary policy instruments. The institution will also look at fiscal policy, what will happen in this context of general policies in Romania in order to ensure sustainable economic growth but also to keep inflation under control.

At the same time, when asked about the growing public debt, the BNR Governor said that it would be better to keep it below 60 percent.

"The National Bank's view is that lower public debt is to the country's advantage in terms of inflation and financial stability. But given the need for resources, both internally and externally, debt growth is no exception, quite the contrary. If you look at the level of the European Union, this is the rule, and we are at the bottom of the EU member states. So, up to 60 percent I do not see major problems for Romania. I would rather say that the budget deficit, because this is where the public debt comes from, it does not come from elsewhere, from the fact that the budget revenues are lower than the expenditures and this situation has lasted for 30 years, since the transition began. So the bigger problem is that this deficit should be reduced gradually, not brutally, the budget situation and therefore the budget deficit situation should be consolidated at low levels, to get to in a reasonable time, and here the Fiscal Council has presented a whole strategy we agree with, at a budget deficit of less than 3 percent and the increase in public debt that should not exceed 60 percent. It would be good if it stayed below 60 percent, maybe even around 55 percent and then it could decrease slightly, stabilizing at that level," Mugur Isarescu declared.

He noted the need for reforms, including in the area of taxation, revenue growth, more severe spending discipline, and the avoidance of multiple budget revenues.

The BNR head declared that Romania has two deficits, the fiscal deficit and the current account deficit, and it would be good for an internationally tense situation to catch Romania with these deficits as low as possible.

 

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