Analysts expect higher interests and leu strengthening amid fears of inflation

Facing the prospect of missing its inflation target again, the NBR (National Bank of Romania) has started to fight price rises by indirect interventions on the forex market, helping the leu strengthen against the euro, which can temper pressure on prices of import goods, say bank analysts.
The price rises recorded since the beginning of the year and the risk of further price increases could trigger responses from the NBR, both through a gradual increase in interest rates on the monetary market, and through a strengthening of the leu.
"It is increasingly likely that this year's inflation target will be missed (3% plus/minus one percentage point), with the 2012 target (also 3%) in turn threatened. Under the circumstances, the central bank is likely to progressively tighten liquidity requirements on the monetary market," write ING analysts in a report on inflation.
Analysts of Erste/BCR cannot find any other explanation for the visible leu strengthening in the last few days than the prospective indirect interventions by the NBR, fearing that inflation could remain too high. Yesterday, the exchange rate calculated by the NBR remained below 4.22 lei/euro, but the European Central Bank, which collects data later, came up with an exchange rate of 4.2057 lei/euro.