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%.
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.
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