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Romanian Central Bank Revises Up ‘08 CPI To 6.7%, '09 CPI To 4.5%

The National Bank of Romania, or BNR, revised upwards its forecasts for the 2008 and 2009 consumer price index (CPI) to 6.7%, and 4.5%, respectively, from the previous 6.6% and 4.2% estimates, central bank governor Mugur Isarescu said Monday.

The central bank's predictions follow a greater uncertainty on the financial markets, Isarescu said. "The prognosis looks good, it has nothing spectacular, it's not bleeding (...) We do not see great changes from what we said three months ago," central bank governor said. Isarescu added that the potential negative effects upon inflation come from import prices, inflationist anticipations and administrative prices, while the forecast is more favorable as regards the crude oil price. Earlier Monday, the European Commission forecasted Romania's harmonized index of consumer prices at 5.7% in 2009, a slowdown compared with an estimation of 7.8% for 2008, and sees inflation further falling to 4% in 2010.Romania's Prognosis Commission has revised up, in its final fall prognosis report, its headline inflation forecast for 2008 to 6%, from 5.8% in its preliminary data, but maintained its headline inflation forecast for next year unchanged at 4.5%. GDP Growth Below Potential Next Year, Seen Recovering In 2010Romania's gross domestic product (GDP) growth will stand below its 6% potential next year, and the economy will return to a normal trend towards 2010, central bank deputy governor Cristian Popa said Monday."Nobody knows how much the international financial crisis will last, but the economy is seen returning to its normal path toward 2010," Popa said. The deputy governor signaled a high level of uncertainties in the market, "which need to be taken into consideration in the following prognosis".Romania's central bank has revised upwards its inflation projections for 2008 and 2009 to 6.7% and 4.5% respectively, citing uncertainties driven by the international financial crisis."The results for 2009 are very hard to predict at the moment," Popa said. Last week, Popa said that, according to central bank calculations, the economy will grow by 4.6% in 2009.Isarescu:Romania's Future Govt Not Seen Limiting Expenses The National Bank of Romania, or BNR, estimates that the country's future government will have problems limiting public spending, while excess of demand will continue especially in terms of people's incomes, central bank governor Mugur Isarescu said Monday. BNR revised down its economic growth forecast for 2009, from the previously estimated 5.5-6%, the central bank's governor said.Last week, central bank deputy governor Cristian Popa said the central bank sees an economic growth of 4.6% in 2009. For 2008, the central bank forecasted an economic growth of 8-9%. The National Prognosis Commission has revised down its 2009 economic growth forecast to 6% from the previous 6.5%, anticipating a slowdown in all sectors of activity, with a sharper fall in constructions.Governor Isarescu: S&P should redo report on Romania Financial assessment agency Standard & Poor's (S&P) should send a team of experts to Romania for a reality check on site and redo the data that actually 'misses the issue' in the report whereby the agency lowered Romania's rating, governor of the National Bank of Romania (BNR) Mugur Isarescu on Monday told a press conference.'We hope that S&P dispatches a team of experts to redo the two pages written beside the subject,' said Isarescu, who explained that Romania's public debt is very low compared to the country's GDP. The BNR official also specified that no negotiations are being held with the International Monetary Fund (IMF) for a financial support because the public debt is not high and BNR has considerable reserves that increased by almost 1.3 bln euros in the last month alone. Standard & Poor's Ratings Services the previous week announced that it had lowered its long- and short-term foreign currency sovereign credit ratings on Romania to 'BB+/B' from 'BBB-/A-3', and its local currency long-term rating to 'BBB-' from 'BBB'. The 'A-3' short-term local currency rating was affirmed. At the same time, the Transfer & Convertibility (T&C) assessment was lowered to 'BBB+' from 'A-', with negative outlooks, indicating that the balance of risks is on the downside - agency experts argued. Governor Isarescu: Romanian economy unaffected by financial turmoil Romanian economy steered clear of the international financial turmoil, but it will feel the indirect effects, such as an accentuated exchange rate volatility, costlier foreign financing, dividend repatriation by foreign companies or a slowdown in exports, BNR governor Mugur Isarescu on Monday told a press conference. Referring to the basic elements that kept local economy unaffected, Isarescu mentioned that the minimum mandatory reserves are high, allowing the gradual adjustment of liquidity in the banking system to the evolution of market conditions and that by prudential and administrative measures BNR has constantly taken steps towards tempering the growth of lending to the private sector and supporting lending in national currency over loans on foreign currency. The ratio of the banks' outstanding and doubtful claims to equity capital keeps low (2.78 pct in June 2008), with the bank deposit guarantee cap (per person and bank) put up from 20,000 euros to 50,000 euros starting October 15, 2008, whereas the steep decline of quotations on the capital market expected to have a moderate impact on the corporative financing process, with three banks dominating the Romanian financial sector.

Referring to the potential effects of the international financial turmoil on Romanian economy, the BNR governor mentioned the higher exchange rate volatility on the background of the significant reduction of the risk appetite of investors on emerging markets and the steady rise of costs for foreign financing, with the shrinking amounts affecting both foreign currency credits and retail lending.

Other indirect effects on Romania could be smaller autonomous capital inflows and the possible in advance repatriation of foreign capital gains made in Romania, the deceleration of demand for Romanian exports due to less spectacular economic growth perspectives for EU member states, but also the tempering down of the dynamics of imports (those associated with private consumption) due to lesser demand.

 

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