The EUR/RON exchange rate will become stable, prices will no longer increase as in previous years, Governor Isarescu said.
The Romanian National Bank (BNR) has set an inflation target for 2010 at 3.5 pc, with one percentage point variation interval, similar to that set for 2009, confirming the work hypothesis used by the central bank ever since February 2009.
BNR Governor Mugur Isarescu stated yesterday at the presentation of the inflation target quarterly report that such target was established in cooperation with the International Monetary Fund (IMF), as a “realistic and feasible inflation target in an economic context with many uncertainties.” The Romanian National Bank (BNR) has reviewed as decreasing the inflation forecast for this year and for 2010, from 4.5 pc to 4.4 pc and from 3.5 to 2.8 pc, respectively, as compared to the report of February.
In the first quarter, the inflation slowed down a bit, even if an inflation boost was recorded during the first part of this quarter.
“Disinflation will be felt on a period of several quarters (…). In Romania, in the next period of time, there will not be pressures coming from demand on the market in terms of inflation”, BNR Governor also stated. He pointed out that the uncertainty interval broadened even more, as compared to the previous forecasts, however with a higher risk of reaching the lowest level of the targeted interval.
Reduction of monetary policy interest was necessary
Fiscal and salary policies have made big strides in stabilizing macroeconomic imbalances, being pro-cyclic in the context of the economic crisis, therefore the monetary policy, in its turn, could not have remained pro-cyclic, the central bank official emphasized, after the Executive Board of BNR decided to cut down on the monetary policy interest by 0.5 pc, to 9.5 pc per year, and maintain the mandatory minimum reserves rates applicable for RON and foreign currency liabilities to 18 pc and 40 pc, respectively. Banks will first of all reduce the deposit interest rates and only afterwards the loan interest rates, further to the Romanian National Bank’s decision to reduce monetary policy interest, as Adrian Vasilescu, Councilor of BNR Governor declared on Thursday. Furthermore, Isarescu rejected the idea of some analysts that the monetary policy interest reduction by 0.5 pc is aggressive.
Stagflation and high external deficit, a bad match
BNR Governor said that stagflation – economic decrease associated with inflation – as combined with a high external deficit is one of the “worse situations that can ever occur”. He explained that the decision of reducing the monetary policy interest from 9.5 pc was based, among other arguments, on the inflation decelerating trend, a strengthening being expected during 2010, associated with the disinflation effect triggered by the aggregated demand contraction.
“That does not necessarily prove that we are concerned with the economic growth, but with maintaining a balance,” Isarescu said. According to AdrianVasilescu, councilor of the central bank’s head, he relies on the Gross Domestic Product growth even this year, despite its negative trend that the economy will record in the first year-half.
EUR – RON exchange rate will become stable, prices slightly decrease
The accelerated RON depreciation caused the rise in the price of all products. The EUR-RON rate will become stable in the next time period, so that prices will no longer increase as in previous years, Governor Isarescu points out. The limitation of economic activities at the end of 2008 triggered a demand decrease, which made importers, manufacturers and traders cut down on prices. The peak of the speculative and non-speculative pressures of the exchange rate has already passed and fiscal and salary policies are more adjusted than in the previous period of time, the BNR official added. He explained that the relative reduction of the RON depreciation risk is based on the rapid adjustment of external imbalances, faster than the very expectation of the central bank, even if no sustainable level has been reached yet on a longer term. On the other hand, Isarescu deems that loan granting will be resumed sooner for trade companies, given that banks have tolerable limitations for non-competitive loans. The Governor expressed its concern with the high costs undertaken by crediting institutions in terms of attracting deposits.
Euro – at its lowest rate in the last month – RON 4.12
Yesterday, BNR published a reference exchange rate of RON 4.1281/ EUR, almost ban 4 lower than the Wednesday’s rate, given that the RON strongly appreciated on the inter-banking market, from EUR 4.15 to EUR 4.1250, similarly to other regional currencies. BNR has not published such a low rate ever since April 10th, when it was RON 4.1189/EUR. On Wednesday, the central bank published a reference exchange rate of RON 4.1638/EUR, slightly increasing against the Tuesday’s rate of RON 4.1638/EUR. The RON/EUR rate still remains high, given that in the first month of this year the reference exchange rate successively reached several historical peaks with the climax of RON 4.3127/EUR on January 22nd, after in the summer of 2007 it had fallen to RON 3.1112/ EUR.