Isarescu: deposit interest rather high, even too generous

National Bank of Romania (BNR) Governor Mugur Isarescu holds the interest commercial banks pay on RON savings deposits as being rather high, even generous, despite the BNR and the International Monetary Fund (IMF) agreeing on an inflation projection of 8 per cent for the end of this year, Mediafax reports. The highest interest is paid on short-term deposits, of one to three months, yet below 8 per cent, which means the real interest rates are negative.

On the other hand, the VAT-raise-induced inflation has a corrective, and not monetary, role, Isarescu states. "The vote by the Constitutional Court is a one for corrective inflation. Non-monetary inflation does not require BNR's reaction. No correction would be made were we to step in," Isarescu also said, who believes that the Constitutional Court ruling has set up a rule whereby inflation is the only means by which any necessary correction, spending curb could be achieved.

Central bank governor's adviser Adrian Vasilescu said that the BNR-IMF inflation forecast was calculated arithmetically, by adding the expected VAT rise impact, but without considering the psychological component bound to restrain price rises to a significant extent, meaning that the inflation rate will actually be smaller than 8 per cent. 'We added the impact of 4.2 per cent of VAT and deducted it for those goods where the VAT was not changed. (…) There was no way we could have also introduced psychological considerations which, to my mind, will have a strong intervention.

The VAT rise per se inhibits consumption, and so does the 25 per cent wage cut affecting 1.4 millions. You will see that operators who have announced price rises will change their mind', Vasilescu said yesterday. In addition, he repeated that the inflation coming from increasing the value-added tax is not a monetary phenomenon, which makes a key-interest rise unnecessary. The vice-governor said that, in the event of a second price marking wave, the central bank would step in with measures including putting up interest. He pointed out that, although the forecast might indicate an actual negative interest rate offered by banks at this point, the possibility that the final inflation rate may be lower than 8 per cent could change things.

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