Romania has the historic chance of reducing inflation to levels close to euro zone, the central bank economist also said.
Next year’s economic growth forecast of 3.5 – 4 per cent might suffer a notable negative revision to 2.5 per cent considering the international context and the loss of ‘traction’ of exports, said Romanian National Bank (BNR) chief economist Valentin Lazea who attended the Banca Comerciala Romana Conferences in Mamaia, on Saturday, Mediafax informs.
After seven months exports reached EUR 25.8 bln, higher by 25.5 per cent on a year-on-year basis, but the rate of growth did lose nearly 15 per cent compared to the end of the first quarter.
On a different note, Lazea says Romania has the historic chance of reducing its inflation rate to less than 3 per cent in the next few years. This scenario is probable of the BNR monetary policy is ‘firmly’ supported by fiscal and salary policies. Consumer prices decreased in July for the second consecutive month, taking the annual inflation rate down to 4.85 per cent, also with the help of the phasing out of the base effect of the VAT hike of July 2010.
In what concerns the Government’s policies, the BNR economist believes that, in order not to fall into the trap of populism, the attention needs to be focussed on complying with the nominal convergence criteria and the Maastricht Treaty criteria as far as possible. At the end of July, Romania only met one of the five convergence criteria, namely the one regarding the public debt.
In Lazea’s opinion, the golden rule to be always followed by a macro-economically cautious government is a maximum of 2 per cent inflation rate, 3 per cent budget deficit, 4 per cent economic growth, 5 per cent current account deficit, 6 per cent public sector pay rise and 7 per cent unemployment rate.
Budget deficit to exceed target of 3 pc of GDP
The budget deficit next year will exceed the target of 3 per cent of the gross domestic product based on the European calculation methodology even in an optimistic scenario with 4 per cent economic growth, according to BNR chief economist. He added that, should current nervousness persists on financial markets, the local market might also be infested, which would lead to very expensive deficit financing and higher interest expenditure for the government.
‘For all these reasons, the government should urgently identify additional ways to cut the budget deficit by around 1 per cent of the GDP,’ Lazea said.
The BHR official went on to say that the best ‘candidate’ for that are property taxes which now barely bring 0.4 per cent of GDP to the budget and the tripling of which would bring them in line with rates used in other countries in Central and Eastern Europe.
An important weight in the structure of export and import is held by cars and transport equipment (41.7 per cent for export and 33.9 per cent for import) and other manufactured goods (33.8 per cent for export and 30.6 per cent for import).
Florin Georgescu: BNR envisages the strengthening of financial system protection mechanisms
BNR envisages the strengthening of financial system protection mechanisms by the consolidation of capitalisation and liquidity and by monitoring lending in foreign currencies, said BNR First Deputy-Governor Florin Georgescu in Constanta.
‘The change of accounting rules does not mean relaxation, but a better illustration of a bank’s situation through harmonisation with international norms, yet without relaxing capitalisation, solvability and liquidity indicators, plus a monitoring of lending in foreign currencies to make sure that borrowers pay the right price for the lack of coverage against foreign exchange risk, because all their income in RON and they still choose to borrow in a different currency,’ Georgescu said at the BNR Summer School on Friday.
According to a BNR draft regulation, consumer loans will have a maximum maturity of five years and borrowers will be required to bring collateral worth 133 per cent of the value of the loan. The minimum down payment for real estate loans will be 30 per cent.
Georgescu pointed out that BNR had changed the legalisation on the Deposit Guarantee Fund to allow for banking restructuring operations.
He added that BNR had put together a contingency plan for the timely identification of banks that might create problems for the entire system. Moreover, Banca Comerciala Romana has revised 2011 and 2012 economic growth forecasts down to 1.4 per cent and 2.9 per cent considering the high risk of contagion on the international markets, the new rates being smaller than the Romanian authorities and IMF’s estimations. BNR’s previous forecasts indicated an economic growth of 2 per cent for 2011 and 3.9 per cent for 2012, according to BCR chief economist Lucian Anghel.