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April 14, 2021

BNR’s Isarescu : We do not have an obsession with inflation at all. We are interested in inflation and credibility because of the interest rates

The National Bank of Romania (BNR) didn’t make an obsession out of inflation, but it’s interested in it because of the interest rates, Governor of the BNR Mugur Isarescu stated at the conference called “Romania 2030: How do we recover the gaps from Western Europe?”

“We are interested in inflation and credibility because of the interest rates. For, otherwise, if we don’t go down with inflation, whether we want it or not, the interest rates will increase and this will discourage economic growth. Here is an extremely fine game the National Bank has to play. Keep credibility. The interest rates are below the inflation rate. We are saying that inflation is not actually caused by excess demand, by what we control, by other factors. Often, the audience doesn’t believe us. Because, for you, inflation is inflation, prices go up. There is no use in me saying ‘you know it’s caused by others.’ But we are looking not to get the interest too high, including because the exchange rate would go up and then Mr Mihai Ionescu [the Secretary General of the Romanian National Exporters and Importers Association – ANEIR], in attendance here, I don’t think he would be very happy, because exports are growing still, but they don’t increase just as fast as imports,” Mugur Isarescu stated.

Also, the BNR Governor mentioned that inflation will reach 3.5 percent at the end of the year and then it will move toward 3 percent.

“We do not have an obsession with inflation at all, but it will come down. I even read today … It will be below 3.5 percent probably by the end of the year. Where does our concern comes from? We should probably not fight so much. Why? Because two-thirds of the price increase, 5 percent was due to some ‘exogenous measures.’ It did not sound good. As if we put the blame on others. That was that. It has been an avalanche since last year. The price for energy, gas and tobacco has risen, all have been postponed due to the electoral cycle. They were made last year and it reached 5 percent. This ‘shock’ on the supply side will pass and inflation slightly moves to 3 percent. It will not go down too much and we cannot drop it too much because there is a Balassa-Samuelson effect. In a country that is in this catching up and running to catch the others, inflation it’s called in English ‘the inflation is built in.’ So it’s in this effort. As a long-run runner who has to sweat more than that … and he sweats in the form of inflation. It’s not the happiest comparison,” Mugur Isarescu stated.

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