Isărescu: Economy will recover after public sector redundancies

The National Bank has no room to cut the key interest rate on RON-denominated loans, and prospects are not very encouraging, either, Governor Mugur Isărescu suggested at the presentation of the Report on third-quarter inflation. The NBR last cut the key interest rate this summer, to a 6.25%-a-year an all-time low after the Government raised the VAT from 19% to 24%, although the economy has yet to rebound after two years of recession.
Isărescu yesterday talked about a “significant” demand deficit, which will extend beyond the summer of 2012, according to the NBR’s current projection, thus helping the NBR fight inflation. However, the governor said economic growth would be resumed in a “healthy manner”, by means of a public sector adjustment, which has started being operated via redundancies and salary cuts. He also renewed criticism of those demanding action from the central bank, i.e. a relaxation of the monetary policy in order to help the economy.
“Adjustments continue on the labour market. They are not limited to the private sector, they are also present in the government sector, with a certain delay, but they do exist. This will help resume economic growth on a sustainable base,” Isărescu said.
The governor names the press as one of the factors keeping inflation high despite the decline in the population’s purchasing power, because expectations of price increases are fuelled by news stories, with consumer confidence also being affected.