NBR deputy governor Cristian Popa recommends the monetary policy rate should be raised on November 10, as a forward looking measure against next year's inflationary threats.
He does not agree with the theory of some analysts who believe the very fast progress in disinflation over the past few months would not call for a rate increase.
"Without prejudging the forthcoming Board (of Governors of NBR i.e.) decision (on November 10), that would be backward looking and therefore would provide an incomplete perspective," Popa told Bloomberg in an interview.
The deputy governor says the central bank must get "tough" in its interest rate policy to keep a cap on inflation amid rising consumer demand and surging economic growth.
"Any inflation targeting needs to be forward looking and pressures for next year are not small. I can state my personal preference, which is for policy to be appropriately tough," said the deputy governor directly in charge with inflation targeting.
Popa only has one vote of the nine in the Board of Governors. He says talks in the Board should be more transparent, which includes going public with the vote structure behind a specific decision, as banks in other Central European countries, such as Czech Republic and Hungary do.
Unlike Popa, the NBR Governor Mugur Isarescu has not made any public references to the interest rate over the last two months. Early in October, he said the central bank was expecting inflation to go down towards 5%. Once that goal attained, a reduction of the minimum mandatory reserves was to be considered.
NBR's Board of Governors has proven its capability of making relatively abrupt decisions about the interest rate early this year, in February, when it raised the monetary policy rate by one percent from 7.5% to 8.5% a year, for fear of a chain reaction caused by the increase in the controlled prices and by the fast-paced consumption increase. This was the opposite of the decision in September 2005, when the interest went down from 8.5% to 7.5%, so that the 7.5% remains an all time low for NBR's monetary policy rate.
The central bank upped the rate in February 2006, as it expected the economic growth to slow down. Its expectations were clearly proven wrong by the statistical data in mid 2006, with no significant relaxation in sight for 2007, either. Popa anticipates the GDP to see a more than 7% growth this year. "Growth may be below 7% next year, as higher real domestic interest rates help slow demand," he said.
Lending continued to increase rapidly, despite NBR's administrative measures, and controlled prices are to leap again to match those in the European Union.
Popa has recently said it would be best if the authorities operated some of the price increases sooner than scheduled to take advantage of the overperformace of the disinflation process and to alleviate some of the pressures of next year. He seems to have had his wish granted, by chance, with the natural gas price set to go up by 8.1-8.5% on November 11.
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