Isărescu: "I don't see a recession and I don't think we're going in that direction"

Our country is not in recession and the National Bank of Romania does not have such a forecast, Governor Mugur Isărescu said yesterday, during the conference where he presented the "Quarterly Report on Inflation".

Isărescu said: "Investments are going, consumption is increasing, credit has recovered. We've had a slowdown in economic growth, but recession means several quarters of high-digit GDP declines. We don't have a recession and we don't see, we don't have this forecast. There are several definitions of recession - for example, it's a recession if there are two quarters with a decrease, even if it's a slight one, but I hope we don't get there either. There is a problem related to the correction of statistical data. It is not easy to correctly calculate aggregated, global statistical figures, corrections may still appear. But I don't see a recession".

According to BNR forecasts, the annual inflation rate will remain on a general downward trajectory, but the rate of disinflation is expected to slow down significantly over the next year. "The trajectory is definitely down. It was revised downward for the year 2024 and the return to the target range at the upper limit is forecasted for 2025", said Isărescu.

For the end of this year, the BNR forecasts inflation of 4.7%, compared to 4.8% in the previous forecast, which will decrease to 3.5% at the end of 2025, the upper limit of the long-term inflation target, of 2.5%. In January, the Consumer Price Index stood at 7.4%, from 6.6% in the previous month, above expectations.

"We have two almost similar inflation forecasts, clearly downward from our point of view, and with the objective of reaching our target. Of course we have also discussed a potential trajectory or calendar for reducing the monetary policy interest rate. Please note that we have this upward behavior since January. We need at least two months to confirm that inflation is definitely coming down. And let's not forget that we adopted this policy of letting liquidity be absorbed daily at the 6% deposit rate, not to 7% (...). And the interest rates in the market, the IRCC for a long time, but now also the ROBOR, are around 6%", said Mugur Isărescu.

The governor emphasized that, through its actions, the BNR is careful not to worsen the country's fiscal situation. "We are not giving in from the point of view of our mandate, but we are also not obsessive about pushing inflation down at any cost and creating an even bigger fiscal problem than we have. We recognize that we have a major fiscal problem as a country, which also leads to the external deficit, which is the largest in the region. Probably the realistic approach is to reduce, to gradually ensure this fiscal consolidation".

According to studies by the NBR, in the period 2021-2022-2023, our country had the lowest inflation in the region, compared to that of the Czech Republic, Poland and Hungary. "From the point of view of economic growth, we really haven't jumped the horse. But we avoided the recession. We calibrate monetary policy in such a way that, together with the Government, we avoid the economy entering recession. Because we have a tough fiscal problem. Large deficits and among the four countries, Romania has the most difficult fiscal situation. A recession would make this situation even more difficult", said Isărescu.

According to the governor, the markets continue to penalize us because of deficits and especially because of the fiscal deficit, which is the largest in the area. "Investors see the difficulty with which Romania manages to reduce this deficit. It is a resistance both on the side of increasing incomes, therefore of taxation, but also on the side of decreasing expenses. We still have the highest risk premium", said Isărescu.

Asked by journalists if he is still running for a new mandate as governor of the National Bank of Romania, Isărescu answered: "From time to time I have to look at the bulletin. I'm not young anymore, I was once, but it's still many years since then".

The governor emphasized that this will be decided by Parliament. "It doesn't even depend on me and there's no point in discussing this topic. The Romanian Parliament decides. We stay until the last moment, to hold the reins, and then we hand over the mandate to the future board, to whom we tell what we have done and what remains to be done. We must do our duty until the last moment", stated the governor of the BNR.