The process of bringing inflation to 2% at a high level will be quite difficult, if not impossible, especially given that society prefers inflationary policies, says Valentín Lazea, chief economist of the National Bank of Romania (BNR).

“By 2019, if we take into account structural factors at the global level, namely demographic growth, China’s entry into the world market, globalized supply chains, digitalization, technology, etc., it becomes clear that all these factors are at work. And then the question I asked myself in my research was why are banks pursuing the fixed 2% target set in the 90s when it’s clear that all these structural factors have made it difficult, if not impossible, to achieve that goals of 2%. This has been proven. No matter how much the central banks went down with the interest rate below 0%, no matter how much money they printed, the structural factors I mentioned made it impossible to achieve it. That’s why in my research I suggested a revision of the inflation target to 1%, with all the negative consequences that might entail. Now, as we speak today, we are in the opposite situation. We are talking about deglobalization, about breaking chains, about the fact that the Chinese have d even already rich. Now it will be very difficult to bring inflation to 2%, which comes above, quite difficult, if not impossible, and if we also add what Lucian said (Lucian Kroitoru, advisor to the governor of the BNR, no), that is, the public preference for Inflationary policy, I I can say impossible. And then the intellectual choice – what should we do? For decades, we’ve kept the 2% target when even the structural conditions don’t allow us to reach that target, and we stick to it to say we have a target set in stone, even if we know we’re not going to hit it or we’re adjusting the target inflation to the structural conditions prevailing in the world,” Valentyn Lazeya said during the debate.

He stated that perhaps the intellectual advantage was on the side of those who said “we are keeping the target unchanged”, but in this context the question arises whether the extreme policy that sought to bring inflation to 2% should have been pursued.

“As now, in the current period, I ask: will it be worth the huge sacrifices it involves to achieve again, but from the top down, the 2% target, or will they again lead to suboptimal policies that will disrupt the world more than they will work well This is an open question, the answer to which will remain in the future,” said Valentyn Lazea.

He also stated that in BNR it is not only a part of technically competent people, but also independence of thought and intellectual courage, accepted and promoted by the management of the institution, something very rare or unheard of in Romanian institutions.

“It is to the credit of the leadership, first of all the governor, that he accepted this independence of thought, accepted people who may have strange ideas, or iconoclastic, or not in accordance with what the leadership of the relevant institution says. The recipe is very simple. Competence can be found elsewhere, but if it is not doubled by this intellectual courage and allowed to show and encourage that courage, the result will be what it is in other institutions. And, unfortunately, this also applies to commercial banks, which you yourself said are not the best example,” said Valentyn Lazeya.

For his part, Lucian Kroitoru, adviser to the governor of the BNR, emphasized that a strong element of the tradition of the central bank is tolerance for different visions, because otherwise it would be impossible to work.

At the same time, he noted that in order to apply the inflation targeting system, fiscal policy must be very disciplined, but he stressed that this is “naive” because fiscal policy does not have “too much respect for this condition of applying the framework and doing its own thing.”

The National Bank of Romania organized a debate on Monday on the works “Monetary Policy. Selected Works” and “Monetary Policy. Selected Works” published in the “Library of the National Bank of Romania – 140th Anniversary” collection.

On the occasion of the 140th anniversary of its foundation, the National Bank of Romania initiated an editorial project within the “Library of the National Bank of Romania” collection, which is embodied in a set of volumes containing works and studies developed by specialists of the National Bank of Romania over the past decades, on various topics in the field monetary policy, financial stability and economy.

The series, combined under the title “140th Anniversary”, debuted with two volumes Central Banks and the Calibration of Monetary Policy and Central Banks and the Calibration of Monetary Policy by Mugur Isarescu, and continues with two volumes entitled Monetary Policy . Selected works”. ” and “Monetary policy. Selected works”, which contain a collection of works on monetary policy.

Source: Agerpres