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Isarescu BNR: Increase of monetary mass in Romania is not at all explosive

The increase of the monetary mass in Romania is 'not at all explosive' and the correlations with the inflation rate have little relevance, Governor of the National Bank of Romania (BNR) Mugur Isarescu told a specialized seminar on Tuesday.

The inflation is a monetary phenomenon, but one that has multiple connections, Isarescu said, adding that in the long term the significant increase in the monetary mass generates price surges, but in the short term the connection is no longer so obvious. Moreover, the monetary mass is higher in a country with a lower inflation than in a country that has a higher inflation, but the perception is exactly the opposite, because of the velocity of the money flow in the economy, indirectly proportional to the trust in the national currency, that is in a country with a lower inflation the monetary mass is 'preserved' whereas in a country with a higher inflation there is a rapid cash flow.

The BNR governor said that in the short term the price evolution is more related to the economic cycle and the populations' incomes - concentration, distribution and less to the cash flow.

The head of the central bank mentioned also Romania's paradox of the first period of the 90s, when the budgetary deficit was very low, the monetary mass recorded a moderate increase of 20 percent and the inflation rate stood at 300 percent, a situation difficult to understand even for the experts of the International Monetary Fund (IMF). This apparent paradox can be explained by referring to the arrears of the state-run companies, a monetary substitute, namely money not produced by the BNR. These implicit subsidies led to a quasi-fiscal deficit of 20 percent in the Gross Domestic Product, fully compatible with the 300 percent inflation.

'There were implicit subsidies. These state-owned enterprises paid only powerful creditors - the employees, the leadership and perhaps some friends, they did not pay utilities and taxes for the public budget. It took a lot of courage to shut down the electricity supplied to the steel plants based in a certain town,' Isarescu said too.

Sursa: http://www.actmedia.eu

Tags: monetary romania inflation increase bnr isarescu

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