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Inflation is coming down in Romania, we are starting the landing, but not all things are rosy and nuances matter, says Cristian Popa, member on the National Bank of Romania (BNR) Board of Directors, adding that external deficit is the beast Romania has to slay.
"The message is that inflation is coming down. We're starting the landing. But not everything is rosy, and nuances matter. There are question marks when we look at core inflation. It's coming down but with other features. We also operate in an environment full of uncertainty not only here in Romania, but everywhere in the world. We are also closely following the monetary policy decisions of the European Central Bank, the American FED, and other central banks in the region. And the message here is that the perspective it is blurred, so to speak. That is why we said that we will act as circumstances arise, without prospective guidelines. We have not done them in the past, we are not doing them now either, because uncertainty is huge. Adding up to these global uncertainties are Romania's structural problems. I mean the twin deficits. The external deficit, the beast that Romania has to slay, is a challenge. The main source of this external deficit is the tax deficit. It generates an important part of the external deficit. But tax deficit is a thorny problem. You have also seen that there are extensive discussions these days at the political level. I will not touch these discussions. The central bank has spoken countless times on this subject, and I would rather try to talk about something more positive, namely the absorption of European funds, mainly PNRR [National Recovery and Resilience Plan] funds," Popa told a "Financing Romania" conference held by Oxygen Events.
He said that the absorption of the PNRR funds is essential, adding that the European funds help keep up Romania's macroeconomic stability, increase the capacity to face adverse developments, and in the current circumstances in which the monetary policy slows down, tax policy seeks to slow it down and it is important to have a buffer to support economic growth.
Popa went on to say that in the long term high current account deficit cannot coexist with the appreciation of the exchange rate. In his opinion, the appreciation of the national currency, the leu (RON) is the result of foreign capital inflows into Romania. AGERPRES
