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Popa: Unilateral adoption of EUR is not an option for Romania

The inflation issue has to be addressed, and it is not a coincidence that the core objective of the National Bank of Romania is to secure price stability, according to the vice governor of the central bank.

The unilateral adoption of the EUR is not an option for Romania, according to those recently declared by the vice governor of the Central Bank, Cristian Popa, during the symposium "Facts and illusions in the context of the economic crisis", organized by BNR last week, Agerpres informs. "We do not intend to adopt faster the European currency. The timely adoption of the single European currency does not mean the elimination of the convergence process, but this will be shifted towards other tools, which will makes things even more complicate", Popa said. He also drew the attention that the unilateral EUR adoption does not solve the macro-economic imbalances, their adjustment having to take place in a coordinated manner. At the convergence level, substantial programs are required prior to shifting to EUR. For Romania, those set remain valid: joining the Exchange Rate Mechanism (ERM 2) in 2012, so that 2014 becomes the year to adopt EUR, and the switch to EUR to take place on January 1, 2015. If this calendar is feasible, then it will resist the crisis period, as it happens now", Cristian Popa said.

He also provided a few technical details related to the switch to the European currency. Since the Central European Bank and ECOFIN will have to make the decision for adopting this currency, they will need the final data regarding the years to which reference is made. Thus, the data for 2013 will be known in 2014. Also, there is need for a convergence report to be drafted and there is need for time in relation to the internal decision - making process of the European institution in this respect, which is expected in mid 2014.

In the context, Popa presented the advantages and disadvantages for postponing the EUR adoption over a longer time period. Thus, the advantages are: a longer period for the accomplishment of the still pending structural adjustments, a better progress in relation to the real and nominal convergence, as well as the synchronizing of the business cycle in Romania with the EUR one. In terms of disadvantages, Popa mentioned the persistence of the higher trading costs associated to the foreign currency exchange risk, which could inhibit investments and economic growth, they could induce a postponement in structural reforms and relaxation of macro-economic policies, mainly at fiscal and salary level. "When investors have fears related to the respective economy, the postponement of EUR adoption could be attributed t structural or economic policy weakness", according to BNR representative. In Popa's opinion, EUR introduction in Romania on January 1, 2015 is a reasonable target.

He reminded that a higher inflation would delay Romania's accession to the EUR zone. "The inflation issue must be solved, this is the criterion that I care most and not accidentally, the core target of the National Bank of Romania is to secure price stability", Popa said. Speaking about a statement based on which a higher inflation could help Romania, BNR representative explained that this would reduce expenditures and increase revenues, if this happens once within a time period. According to Cristian Popa, the idea that a higher inflation could reduce the deficit is "a very short - sighted perspective" since this is not a sustainable measure, which is functional for not more than one year, since an inflation rate over the budgeted one results in an increase of the nominal revenues and a decrease in expenditures.

He underlined that inflation is an element of risk, and those who are potential lenders and "buy the governmental bonds will expect to be paid for covering this risk".

Disinflation continues without any doubts

The disinflation process continues in Romania and it will be coupled with a deceleration towards negative growth economic rates, as Cristian Popa, vice governor of the Central Bank, added. He indicated that the prices in force and the exchange rates are still inflationary pressures, similar to the evolution of the economic activity, or the aggregate demand, which tends to reduce. "Regarding the inflationary pressures currently noted, there are two important developments. There is the evolution of the economic activity or aggregate demand, which tends to reduce, and we have pressures mainly from the exchange rate and from the prices in use. For the time being, the volatile prices have not been very obvious in one side or another", Popa said.

The BNR official underlined that in spite of following a path towards the direction BNR committed to, disinflation has been slow so far, which indicates that the demand for aggregate products did not drop fast enough as it was initially expected. He reiterated that the rate continues to have an effect on raising inflation, and the propagation of the modifications in the price of the product, embedded into the internal prices by means of the exchange rate, tends to reduce as demand decreases.

The agreement with IMF shall not result in banks providing more loans

The bankers say that the EUR 5 bln. to be received in May and the new rules of BNR will not result in the banks providing more loans or decreasing interests, according to Realitatea.net

Currently, the banks have money for lending, but they are afraid to give it, because they consider several risks.

In May, the first installment from the external loan for Romania will be transferred to BNR. The National Bank has decided to modify the structure of the mandatory minimal reserves in foreign currency to leave larger amounts available for lending. It is about EUR 1 bln. "EUR 1 bln. is not a huge amount for the banking system (...) This could be a support for lending but it is not a sufficiently strong argument to have substantial cuts in the interest rate. It is not the time yet. The market evolution does not allow us to abandon prudential policies", according to Corneliu Cojocaru, communication manager of a commercial bank. Currently, in case of a real estate loan, the interest is over 12 per cent per year in EUR, and 22 per cent in RON. Thus, a two - person family who wants to take a loan of EUR 40,000 to buy a one - room flat has to pay a monthly rate of EUR 350.

 

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