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Central bank admits that 2011 inflation target will be missed

Key messages sent by the NBR governor at the presentation of the quarterly Inflation report:

− The new inflation forecast of NBR is 5.1% in 2011 (up from 3.6%) and 3.6% in 2012 (up from 3.2%). The target is 3%±1pp in 2011 and 2012. Inflation will enter the targeted range in 1Q12

− Higher oil and food price on global markets as well as higher administered prices on the domestic market (energy mainly) were the key driver of the new official inflation forecast

− NBR will adopt administrative measures to contain FX-lending for unhedged borrowers if FX loans gain speed after the recent cut in FX minimum reserves. NBR is comfortable with FX loans for companies with export activities and also with mortgage FX loans

− 2015 can be considered an ambitious target for Euro Zone entry

− The appreciation of RON is supportive for disinflation on short term but NBR is reluctant to use this instrument in order to reduce inflationary pressures

− There are risks for a relaxation of the fiscal consolidation program before 2012 elections

− Currently, there is a widespread optimism of the global investors towards Romania and higher inflows of volatile capital generate problems for the dosage of the monetary policy tools

Assessment: We maintain our key rate forecast of 6.25% in December 2011 and 6.75% in June 2012. The new preferred targeted range of NBR for the RON seems to be 4 – 4.2 in 2011.

Sursa: http://www.erstegroup.com

Tags: inflation minus target euro

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