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Higher inflation rate would delay euro adoption

A higher inflation would blow headwind against Romania's joining the eurozone, central bank vice-governor Cristian Popa declared after the symposium dubbed 'Realities and Illusions amidst Economic Crisis' organised by the National Bank of Romania (BNR).

'The inflation issue needs to be solved, this is the criterion I insist upon the most and it is not by accident that the fundamental goal of the National Bank of Romania is to ensure price stability,' said Popa.

Assuming that Romania joins the eurozone and its inflation rate goes up subsequently, Popa said that this would translate into the risk bonus past the European interest rate and past the interest carried by German government bonds which serve as reference, thus rendering the financing or refinancing of the public debt costlier and annulling all benefits the tax authority would anticipate.

'For this reason I find it extremely dangerous for us to believe that higher inflation could be a solution. Inflation is a cost for economy, it is a source of incertitude, reduces the potential growth rate and can affect the effective rate and distorts resource assignment. This is an element we need to downsize to a level compatible with price stability and I believe the quantitative definition given by the European Central Bank for this period is the adequate one. That's around two percent, a level correlated with price stability and which takes into account the changes occurred, the new products that appear on the market and other elements that can influence the consumer basket,' explained Popa.

The process of disinflation will continue in Romania in association with a deceleration to negative levels of economic growth, said Cristian Popa, adding that controlled prices and the exchange rate still represent inflationist pressure, just like the evolution of economic activity or aggregate demand, which is on a downward trend.

 

Sursa: http://www.rompress.ro

Tags: inflation higher would euro bnr

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