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BNR official: Inflation turned into disinflation; price grow at slow pace, in Romania too

November 29, 2023

Inflation, according to September 2023 data, has turned into disinflation, prices grow at a slower pace, in Romania too, considers Adrian Vasilescu, counsellor of the BNR governor (National Bank of Romania).   “The world has reached a favorable moment and we can analyse the evolution of interest rates on the background of inflation reassessment. That means inflation has turned into disinflation, according to September 2023 data publicly released. This is also happening in the USA and EU, and in Romania too,” Vasilescu mentioned, on Thursday, in a message conveyed to the organizers of the online conference “Evolution of interest rates in context of inflation reassessment”.   According to the BNR official, energy transition turned into energy crisis and prices of energy products have grown sky high.   “Prices of energy products and services have gone up, when strategists everywhere have become convinced that oil and natural gas are not enough for everybody, and the fire that started from the price of energy spread to the whole price system. In March 2022, the Federal Reserve, followed by the Central European Bank in July, triggered the battle for the new transition from the big relaxation of the monetary policy to the big tightening. A complex and risky process of making credits more expensive by increasing main interest rates started. Why risky? Because the fire lit from energy products and prices cannot be turned down with monetary policy decisions”, said Adrian Vasilescu.   At the same time he explained the way in which the National Bank had chosen to intervene through monetary policy decisions.   “Why did we intervene in the spring and summer of 2022, even though the fire became stronger when the geopolitical crisis was added to the energy crisis? Why didn't BNR follow the path of the two big banks and adopted a harsher monetary policy as of October 2021? Because our central bank had a long experience in curbing inflation since 1990 to the years 2017-2019, in five big inflation cycles. Over 2017-2019 when the banl faced high inflation triggered by the price of energy, it learned two important lessons. The first one: the monetary policy cannot fight high energy prices but can fight basic inflation which all world banks calculate, by substracting inflation produced by volatile prices, the energy ones included. In the USA and the euro zone, Fed and CEB did not have such experiences. For 40 years, since the oil crisis of the 1970s, the two big banks have not been facing any inflation. On the contrary, they had deflation cycles which they fought by relaxing the monetary policy. Practically, they dropped monetary policy interest rates to zero or close to zero. The global inflation cycle started in 2021 and caught them unused to such a fight, as in wars, when military strategists are often trained in heavy fighting. Inflation turned into disinflation and continues to drop to the optimum 2% share. In addition, the present price disorder determined some central bank strategists to move the best share to 2%”, the BNR counsellor added.  

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