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National Bank revises projected inflation upwards to 4.5 pct in 2009

Romania's central bank revised upwards its annual inflation forecast for December 2009 to 4.5 percent, due to higher excise taxes but kept its 2.6 forecast for 2010, central bank Governor Mugur Isarescu said on Friday.

'Our (2009) forecast is 4.5 percent. The main factor is tobacco excise duties,' Isarescu told a news conference where he presented the bank's quarterly inflation report.

The central bank is targeting 2.5-4.5 percent inflation at the end of this year and next. Isarescu also said the main reason the bank kept rates on hold at 8 percent a monetary policy meeting on Tuesday was 'uncertainty' and that it was difficult to reduce the official cost of borrowing when money market rates were high.

The revised forecast -- due to higher excise taxes -- puts price growth at 4.5 percent in December, at the top end of the bank's 2.5-4.5 target band, central bank Governor Mugur Isarescu said on Friday. The bank kept its 2.6 percent forecast for 2010. Some analysts say this year's target is at risk largely because of political noise and chances of leu weakening.

'The 4.5 percent forecast is likely closer to reality but all it shows is the central bank could overshoot the target,' said ING ( ING - news - people ) Bank's Nicolaie Alexandru-Chidesciuc. 'Even without further leu weakening I don't think the target can be met.' Earlier this month, the bank surprised markets by keeping its benchmark interest rate unchanged at 8 percent, leaving Romania with the highest borrowing costs in the European Union. 'The main reason (for keeping rates flat) was uncertainty. There is nothing we can do but wait and see,' Isarescu told a conference to present the quarterly inflation report. 'Our main message is that we remain tense.'

Isarescu said the government's massive needs to finance its budget deficit would cause the spread between the key rate and interbank rates to persist, exerting pressure on inflation. He warned efforts to fund the fiscal deficit without IMF cash were an 'acute problem'. Analysts have said the central bank's cautious stance was a signal it was worried about the leu currency which has been under pressure since sinking to its lowest level in eight months after the fall of the centrist minority cabinet.

Dealers have said the central bank has intervened repeatedly to support it in recent months. The bank has declined comment. On Friday, Isarescu said its foreign exchange reserve level was 'slightly excessive'. He said further leu weakening was unjustified by economic fundamentals, adding the current account deficit had narrowed far beyond expectations.

We have maintained the intervention rate because of uncertainty

The decision of the National Bank of Romania (BNR) to maintain the intervention rate at 8%, was motivated by the uncertain situation in the country and on the market, BNR Governor Mugur Isarescu said Thursday.'Maintaining the rate at the same level is based on the fact that unpredictable situations can emerge at year-end. We have high interest rates on the interbanking market and the banks' intervention interests are the same,' Isarescu said.

Convened on its first meeting after its official installation on Oct. 11, the Board of Directors of the National Bank of Romania (BNR) kept the key interest rate unchanged at 8 percent. The Board also decided to keep a firm hand on the management of the banking system's liquidity with a view to enhancing the transmission of monetary policy signals, maintaining the current levels of the required reserve ratios applicable to credit institutions' liabilities in local lei and foreign currency.

The BNR Board set the inflation target for 2011 at 3 percent, with a variation band of plus minus 1 percentage point, down from 3.5 percent in 2010. The assumed target will be discussed with the government.

The analysis of macroeconomic indicators developments reveals a consolidation of disinflation with a certain lag, a persistent economic contraction and an ongoing significant adjustment of the external deficit, along with a worsening of foreign investors' perception regarding the Romanian economy amid heightened tensions in the domestic political field. The annual inflation rate slid marginally to 4.94 percent in September from 4.96 percent in the previous month due to increases in excise duties on tobacco and moderate fluctuations of the leu exchange rate.

Reduction of public sector wage bill, a prudent evolution of spending

The reduction of the public sector's wage bill points to a more prudent evolution of spending in this direction, governor of the National Bank of Romania (BNR) Mugur Isarescu said on Friday. 'The reduction of the public sector wage fund points to a more prudent evolution of spending in this direction,' he said. The BNR governor also highlighted the strong adjustment of the workforce market in the private sector. 'We have a very strong adjustment of the workforce market in the private sector. The evolution of the wage bill points to massive cutbacks in the private sector, but in the public sector as well,' said Isarescu. The National Bank of Romania maintained its forecasts on the evolution of inflation, projecting it at 3.5 percent in 2009 and at 3.5 percent in 2010.

Sursa: http://www.actmedia.eu

Tags: target market romania bnr evolution sector national rates central inflation forecast percent isarescu governor ing

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