The National Bank does not want to push for too fast an inflation decline using a more substantial ROL appreciation for instance, as it is fully aware that the deeply-rooted inflationary sources in the economy have not been removed yet and may burst at some point.
"Let's not rejoice that much in this unexpected inflation decline. Any overperformance by 1 or 2 percentage points is welcome, but we do not want to push things to happen," NBR Governor Mugur Isarescu said.
He says a highly appreciated exchange rate could lead to a very strong disinflation, but this trend is undesirable, before structural issues in the economy, that are likely to fuel inflation, are addressed.
The inflationary rate did not go above 3.7% in the first six months, while the full-year target NBR and the Government plan to attain is 9%.
As for the foreign balance, the central bank Governor said the National Bank was no longer "worried", as it was content with the proper funding of the current account deficit, but was still "preoccupied" with it.
At the same time, Isarescu said the foreign currency reserves of the central bank would continue to go up considering the foreign currency inflows related the privatisations announced for the near future - especially those derived from the sale of Petrom, which would only increase pressures for a ROL appreciation on the forex market. The Governor says the market will have to get used to seeing record after record in traded volumes. A new all time high of more than 567 million euros was hit last Tuesday.
Thursday's auction for a three-year bond issue with fixed interest did not come without a surprise. After ten months of failures, the Finance Ministry finally met the market halfway at up to 13.99% interest per year, only 9 base points above the last level accepted in September 2003.
The Finance Ministry raised almost 77% of the 300bn ROL it set out to.
Any bid from banks that targeted more than 13.99% interest was rejected.
The Ministry's latest attempt to release government securities for three years was made on June 17; all bids were, however, rejected, because of the interests asked that were deemed as steep. The interest on government securities due in one year fell below 17%, as well, last Tuesday.
The banks bought 10,000bn ROL worth in deposit certificates issued by the National Bank of Romania at an average yield of 19.5%, yet their response to the demand for ROL for one month was below expectations.
The credit institutions bid for 5,000bn ROL more than the NBR was prepared to accept. NBR was willing to pay up to 19.8% interest.
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