The National Bank of Romania estimates a slight inflation rate fluctuation around 5%

The National Bank of Romania has revised upwards from 3.5% to 3.6% the annual inflation rate forecast for the end of 2018. However, it reduced also by 0.1% the forecast for December 2019, which had been previously estimated at 3%.

Daniela Budu, 10.05.2018, 13:37

The central bank estimates that the inflation rate will slightly
fluctuate around the 5% threshold in the coming months, and in the 4th
quarter of the year it will diminish, said the governor of the National Bank of
Romania, Mugur Isarescu, upon the presentation of the quarterly report on
inflation. He pointed out that, of late, price hikes have been generalized
against the backdrop of an increase in the demand surplus and of production
costs.

These developments highlighted by the central bank’s surveys are
related to the robust consumption growth rate, although this rate was slightly
diminished in comparison with the peak value reported in the 3rd quarter
of last year, by the consumers’ ever – deteriorating confidence, by investments
re-balancing, especially in the private domain, and by the quasi-stagnation of
the non-governmental total credit, starting this summer.

This latter phenomenon, caused by a drop in the loans taken out by
companies, is also the result of a poor capitalization of Romanian companies,
among other things, many of these companies being unable to qualify for taking
out a loan. Mugur Isarescu explained that people often make confusion between
capital and debt.

Mugur Isarescu: The illusion of
capitalizing a company by taking out a loan is very dangerous and it can make
you go bankrupt. If you want to have a solid company, you need to rely on a
strong capital. Capital should not be mistaken for something else, and the
Romanian companies do need capital. Private companies, owners need to bring
their own capital and stop thinking that banks will help them in this regard.
Banks only grant loans.

Other significant phenomena highlighted by the central bank governor
are the deepening of the current account deficit and the rise in salaries,
including in the minimum wages, an evolution that cannot be and should not be
stopped, but that should be made in a controlled manner, depending on what the
economy can absorb, so that it should not be significantly reflected in price
rises.

Talking about the importance of a stable macroeconomic framework,
Mugur Isarescu said that the monetary policy had to become restrictive. He
explained that the national bank did not intend to stop the economic growth,
but that it was only trying to reduce the demand surplus to reasonable limits.

During Monday’s meeting on monetary policy, the central bank decided
to increase again the key interest rate to 2.5%, after a break in April, and
after two other growths were decided upon in the first 2 months of 2018.
According to Mugur Isarescu inflation will be kept under control and interest
rates will not skyrocket, after the national bank has decided to carry on with
the consolidation of the monetary policy.