Drop in FDI led to recession, Central Bank cannot support the GDP on its own, tap into EU funds, Governor Mugur Isarescu stated.
The National Bank of Romania (BNR) has hiked its inflation estimate for this year from 3 per cent to 3.2 per cent because of the base effect, and estimates an inflation of 3 per cent in 2013, BNR Governor Mugur Isarescu announced yesterday, Mediafax informs. “By Q4 of 2013 we will see a certain variation of the inflation rate we aim for, but within the limits of the interval (…) over 80 per cent of the variations of this type come from the base effect. The changes brought to the estimate are minor but our team is scrupulous,” Isarescu stated.
He pointed out that unlike previous data, the new information shows that the minimum inflation rate expected to be registered in Q1 of this year will not go below 2 per cent. “We are now seeing less favourable effects from volatile food prices. The impact on current data is less favorable. That is why we don’t expect the IPC to drop below 2 per cent this spring,” Isarescu added. He also pointed out that the new estimate contains a lower impact from regulated electricity and natural gas prices because the government has negotiated with the IMF and the EC the postponement of the price hikes. Isarescu however reiterated that these talks will resume in April.
The governor added that the Romanian economy was affected by the dramatic drop in FDI after 2008 and the Central Bank cannot support a recovery by itself, through interest rate policies, the only solution being to tap into European funds. “Of course it (interest rate drop – editor’s note) will stimulate economic growth but we don’t want to send out the following message: that stimulating economic growth by ourselves by lowering the monetary policy rate is BNR’s goal and within BNR’s power. It’s a false message that doesn’t help anyone. And talks such as ‘if only they lowered it faster this would have happened’ or ‘they should have lowered it last year’ are not fair because they distort not only the public discourse but the public debate too,” Isarescu stated.
He pointed out that in recent years Romania registered a major quantitative change that consisted of a drop in FDI and medium and long-term loans, a drop from EUR 16 bln in 2008 to approximately EUR 2 bln in 2011.
At the same time, Isarescu agreed that lowering the monetary policy rate stimulates growth and crediting but these potential hikes will be much lower compared to what happened in the past. “Net inflows from the European Union have remained about the same. (…) That shows a lost opportunity. Everyone states that it’s difficult to tap into European funds. I don’t believe it. You mean to tell me that tapping free funds is difficult while tapping funds that cost and that have interest is easy? Maybe someone can explain this to me,” Isarescu added.
Nevertheless, the BNR Governor believes that the lost opportunity can also be seen as a future opportunity, the process of resuming economic growth and disinflation depending on the manner in which Romania will be able to start absorbing European funds.
Change of Gov’t can be assimilated and managed if it is fast and constitutional
The appointment of a new Premier represents a major political change and a stress factor for markets, but can be assimilated by investors and managed by BNR provided it takes place within the constitutional framework and ends fast, BNR Governor Mugur Isarescu stated. “A government change taking place within constitutional procedures is not a factor of comfort for markets. For now we see no visible signs of stress on the markets. For now things are under control. And we hope it stays that way,” Isarescu stated.
Previously he pointed out that in 2000 he “worked well” with current designated PM Razvan Ungureanu, who was secretary of state at the time. Isarescu was the Prime Minister that year. He pointed out that in accordance with the law the Central Bank is working and wants to work well with any government appointed through constitutional procedures.
Asked whether the Central Bank will react in case the political situation deteriorates, Isarescu answered promptly: “Of course, we won’t sit on the fence watching how things deteriorate. We never had that position of sitting on the fence and watching what happens on the markets. We have intervened even when it was less necessary.”