Central Bank governor Mugur Isarescu: it is normal for banks to have a procyclic behavior not for the government 

The inflation rate was maintained in the interval aimed by the National Central Bank and the factors that contributed to this were: the persistence of the demand deficit, the decrease of labor costs and the favorable influence of foreign prices, Central Bank Governor Mugur Isarescu declared in a presentation of the inflation report. There is a demand deficit, namely the economy will function below its potential in the upcoming period. Debt to the private economic agents can be considered a bad tax over the economic environment, Isarescu said.

Here are his main declarations:

• the impact of VAT increase over prices is permanent, but its impact on inflation is temporary 
• the increase of VAT would generate an increase of consumtion prices by 4.2% 
• for 9% of the products included in the consumption, the VAT remains the same 
• the possible effects will be somewhere between 2.9% 
• the Finance minister needs to take up every loan opportunity. The ministry needs a strategy for the loans from the foreign market, announce it publicly and discuss it with foreign investors 
• currently, Romania’s public debt and foreign debt are high and the strategy is essential 
• the Central Bank is ready to supply the market with liquidity, but not too much so it will pressure the banks because banks would be in a position to cover the excess through deposits