Inflation is a disorder of prices, and if central banks were to intervene by attacking the energy sector, it would do more harm than good, Adrian Vasilescu, the strategy consultant at the National Bank of Romania (BNR) told a specialized debate on Friday, told Agerpres.
"I hope I won't be seen as arrogant if I say that a motto which is circulating today in all central banks is that when inflation is swirling in an area, in a country or around the globe, central banks say - and the Fed and the ECB and the Bank of England and the Bank of Canada and the Bank of Japan - that, under certain conditions, inflation is ultimately a price disorder. When that source is energy, and for central banks to step in to attack that source would do more harm than good. Mrs. Lagarde, the President of the European Central Bank, expressed herself very plastically that if the European Central Bank raises the interest rate and comes in to hit inflation, do you think that the wind will stop blowing in the windmills, do you think that it will end with the drought that drains lakes and it won't be enough amount of water as needed in the atomic reactors, the nuclear reactors, or for the hydrogen in thermo-hydropower plants? Well, this lesson, which central banks have learned, I believe very well in these years of crisis , starting from December 2020 and until now - the National Bank of Romania learned this lesson in the 90s and since then, it has had countless opportunities to apply it (...) - when the big banks talk about inflation, they set a framework on a 40-year distance. They go back to the 70s, when there were two very strong oil shocks in the world and which resulted in a double-digit inflation (...) Romania was confronted with five inflationary cycles, no less. The first was with inflation of 200 and 300pct, from '90 to '93. The second was by 150pct. These two inflationary cycles had a cause: the liberalization of prices, because we had fixed prices and we had to enter the market economy," Vasilescu stated.
He added that price liberalization was a cause and if the central bank had touched this cause of inflation it would have crushed it.
"(...) throughout this period of crisis, starting from 2020, we had only one recession, of 3.7 in 2020. Basically, it was a modest recession, what is called a soft fall or soft landing. So the National Bank basically taught other banks how to proceed in the conditions in which, if they were to intervened on the market to hit inflation, they would do more harm than good," the BNR representative argued.
The financial-banking and business environment in Romania discusses, on Friday, within a debate called "Learned Lessons in Crises Times A Global Puzzle," about the most important economic events of the year.