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More emphasis on inflation, less on economic growth

The annual inflation rate will range between 5 and 6 pc in late 2008, close to the span targeted by the Central Bank, Governor Mugur Isarescu says.

BUCHAREST – Romania’s economic growth may carry on in 2008, because all prerequisites are met, but a balance of macroeconomic levers is necessary, warns the Governor of the National Bank of Romania Mugur Isarescu. “We must not focus too much on speeding up the economic growth. (…) If there is a problem we have, this is the increase of the inflation rate, pushed by the severe drought last year and the rise in energy prices. The threat: another round of price rises, which has already been announced, adding to which are salary pressures,” Isarescu emphasised yesterday in a conference organised by the Romanian – British Chamber of Commerce. The successive raises of the key interest will not have a significant impact on this year’s economic growth rate, the BNR Governor also stated. The BNR official also warned that any delay in implementing economic reforms or in the real and nominal convergence process would force Romania to defer its adoption of the Euro, scheduled for 2014. The year-end inflation rate will be close to the variation margin targeted by the central bank, and will most likely range between five and six per cent, Governor Isarescu said. The central bank official reiterated his belief that March will remain the peak of the annual inflation, at an estimated 8.5 per cent. Threat of excessive credit rise is over The threat of a very high rise in crediting is over, but some bankers’ proposal to introduce collaterals to foreign currency loans remains a good idea, BNR Governor Mugur Isarescu stated. Isarescu pointed out that the expansion of financial services is a positive element for Romania, although the speed of the non-governmental credit rise has been very high, but he trusts that the rate will slow down. On the other hand, Isarescu underscored that, while the report published by Fitch rating agency presents some of the real problems facing Romania, the analysts’ conclusions are slightly pessimistic and far-fetched. As regards the liquidity shortage mentioned by Fitch, Isarescu says backs are not facing this problem for the time being. More sustainable exchange rate, in line with current account deficit level The BNR Governor stated that the current currency exchange rate is more in line with the level of the current account deficit than the exchange rate last summer. “Even without the international turmoil, I believe Romania should have reduced its current account deficit,” Isarescu argued. He explained that the goal of the currency exchange rate should be to encourage exports rather than imports, while not affecting the inflation rate either. “The recent volatility has been a welcome correction for the economy in terms of the current account deficit,” the BNR Government argued. Isarescu added that savings will be critical to reversing the current account deficit trend. He says that in a first stage he expects the deficit to stay at the current level, rather than drop rapidly. As regards the national currency, the BNR Governor expects the exchange rate to stay at a sustainable level. BNR posted Wednesday a reference exchange rate of RON 3.6747 for the EUR, up RON 0.0022 as against the level published in the previous session. The RON witnessed a slight depreciation as against the EUR, unlike other currencies in the region, which have appreciated. Also yesterday Mugur Isarescu said Romania was not likely to have a budget deficit of three per cent of the GDP, but that problems are still reported as regards the structure of public spending. The central bank Governor admitted that the fiscal policy is pro-cyclic, with public expenditure further stimulating consumption. Sursa: http://www.nineoclock.ro

Tags: current exchange account deficit level inflation bnr growth economic governor isarescu romania euro

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