The inflation rate registered in the first seven months of this year is below the projection announced by the central bank at the beginning of this year and the performance estimated for August will ensure the meeting of the 9% inflation target for 2004, National Bank of Romania (NBR) governor Mugur Isarescu told Mediafax.
"In July, the increase in inflation was more significant due to necessary corrections of utility prices, which were not offset by decreases in the prices of agricultural products. We hadn't expected this latter occurrence, but the July evolution has been taken into account. Despite this higher increase in July, the inflation rate after the first seven months of this year is still below what the NBR had anticipated at the beginning of this year, by almost one percentage point. We think inflation will be lower in August and therefore even though there might be some peaks, we will not go beyond the 9% target this year, December-to-December, and will register inflation of 6-7% in 2005", Isarescu stated.
The NBR governor accounted for the decision to reduce the intervention interest rate twice during the same month by pointing to the additional measures taken to reduce aggregate demand, as agreed upon with the IMF.
"The meeting of this year's and next year's target implies further caution. The NBR's decision to reduce the intervention interest rate by 0.5% is also correlated with the fact that, in line with the supplementary letter with the IMF, further measures have been taken in order to reduce aggregate demand. In other words, there have been steps to compensate for this drop in the interest rate", Isarescu said.
The central bank official pointed to the fact that the external balance increasingly rests with fiscal policy. According to Isarescu, the NBR can afford a certain relaxation on the basis of the size of foreign currency reserves, which in August exceeded the record level of 10 billion euros.
At the same time, Isarescu pointed out that the NBR no longer regards the exchange rate as an implicit target of monetary policy. In the context of capital account liberalisation, the central bank will no longer publish forecasts related to ROL's fluctuation intervals.
razvan.voican@zf.ro
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