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Central Bank governor Mugur Isarescu: it is normal for banks to have a procyclic behavior not for the government 

de A.C.
Vineri, 6 august 2010, 15:46 English | Business

The inflation rate was maintained in the interval aimed by the National Central Bank and the factors that contributed to this were: the persistence of the demand deficit, the decrease of labor costs and the favorable influence of foreign prices, Central Bank Governor Mugur Isarescu declared in a presentation of the inflation report. There is a demand deficit, namely the economy will function below its potential in the upcoming period. Debt to the private economic agents can be considered a bad tax over the economic environment, Isarescu said. 

Here are his main declarations: 
  • the impact of VAT increase over prices is permanent, but its impact on inflation is temporary 

  • the increase of VAT would generate an increase of consumtion prices by 4.2% 

  • for 9% of the products included in the consumption, the VAT remains the same 

  • the possible effects will be somewhere between 2.9% 

  • the Finance minister needs to take up every loan opportunity. The ministry needs a strategy for the loans from the foreign market, announce it publicly and discuss it with foreign investors 

  • currently, Romania's public debt and foreign debt are high and the strategy is essential 

  • the Central Bank is ready to supply the market with liquidity, but not too much so it will pressure the banks because banks would be in a position to cover the excess through deposits

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