Isarescu sees inflation at less than 4% as late as 2009

The central bank will not relax the interest rate even when inflation stabilises towards 5%, says NBR Governor Mugur Isarescu. "We are wondering what we will relax when we see inflation stabilise towards 5%. It won''t be the interest in any way," Isarescu stated yesterday during a FinMedia conference. The National Bank intends to maintain its tight monetary policy for fear it would not be able to take inflation down to less than 4% even as late as in 2008-2009, although having set a 5% target for 2006, which it admits it will miss, though. "Can we set an inflationary target of less than 4% for 2009, when accession alone generates an additional two percentage points above the normal inflation?" Isarescu wondered. As for 2008, the NBR believes a target of less than 4% would be completely unrealistic. "Yo u cannot set a target of less than 4% in 2008 because that would mean free prices would go into deflation (go down i.e.), a trend that would conflict with the economic growth," the head of the central bank stated. He says that inflation might follow a curve that could level to a certain extent by 2010. Even the targets announced by the NBR could maintain at about the same levels in 2008 and 2009. "A levelling of the target will not mean a relaxed monetary policy, but on the contrary," Isarescu said. At present, the National Bank expects completion of the talks with the Government about setting a firm schedule to raise controlled prices that would allow the NBR to build targets for the upcoming years. ZF