Forecasts place inflation rate at the end of the year at 5.2 pc, taking into account changes in estimates regarding the monetary policy rate trends, the bank’s chief economist, Lucian Anghel says.
Banca Comerciala Romana (BCR) revised its estimate of economic growth in 2011, from 1.2 pc to 2 pc, anticipating a potential quicker economic recovery, backed by the estimated rise in direct foreign investment, from EUR 2.6 bln in 2010 to EUR 4 bln, the bank’s chief economist, Lucian Anghel, explained, in the report “Romania – Reverting to growth mode”, released, yesterday, by the bank, Mediafax reports. At the same time, BCR revised at a higher value – 5.2 pc – estimates regarding the inflation rate at the end of 2011. The bank official argued that, in the context of the revised inflation rate estimate, one should also take into account changes in the estimated trends of the monetary policy rate. “We had anticipated a reduction in the monetary policy rate in the course of this year, but we now expect the rate will remain steady and may even rise in 2012, up to 6.75 pc, given that the economy will start growing and get closer to reaching its full potential,” Anghel argued. At the same time, renouncing the flat tax is not advisable at the moment, the report further reads. BCR’s forecasts for 2012 point to a 3.9 pc-economic growth and direct foreign investments of EUR 4.5 bln.
Lucian Anghel also argued that economic recovery should be backed by private investments. “The car-making industry, the computers, electronic and optic products-manufacturing industry, electrical equipment, machinery, tools and equipment-manufacturing, as well as the metallurgic industry, were the main sectors which accounted for a rise in exports in 2010,” the chief economist of BCR further argued. Nevertheless, although exports rose by an average 10 pc compared to figures before the recession, the level of exports per capita in Romania remains, by far, the lowest, compared to Central and Eastern European EU member states, Anghel pointed out.
Moving on to another topic, the official argued that Romania’s economy continued to be backed by consumption, and net exports could only have a limited positive impact on economic growth at this stage. “Consumption will rise at a slower pace this year,” Anghel stressed. The latter explained, as well, that changing the economic model was no easy feat and that this is usually done gradually, as a country accumulates a critical mass of investments and productivity, which allow it to rely more on exports. Lucian Anghel criticized the country’s inability to generate commodities at local level.
The chief economist of BCR stressed, as well, the urgent need to prioritize projects which may have a significant impact on the economy. Thus, according to the latter, the construction sector is still on “shaky ground” and it is yet to be seen if the measures initiated by the Government to facilitate the re-launch of infrastructure projects in the latter half of the year would bear fruit, given that the multi-annual budget project is still in its early days. Anghel added that retail sales may be affected by the high inflation rate.
As regards the consumers’ trust, the BCR official stated that trust indicators had appreciated to a certain extent, but were still way below the average pre-crisis level.
Ron remains steady, with a fluctuation range of RON 4-4.2/EUR
The RON continues on a steady trend against the EUR, but the fluctuation range slumped at RON 4-4.2/ EUR, which is more realistic in the present international context, in which the investors’ trust level can change overnight, Lucian Anghel, added. On the other hand, BCR analysts report that the quick appreciation of the RON up to an exchange rate below RON 4.1/EUR did not result in a measurable appreciation of the investors’ trust level across the region. The chief economist of BCR further stated that estimates regarding the exchange rate at the end of 2011 remained steady, at RON 4.1/EUR. The bank analysts further report that the National Bank of Romania (BNR) continues to be concerned about the risk of excessive volatility of the national currency. According to the same source, a controlled floating exchange rate will be maintained.
EURIBOR hiked by at least 0.25 pc
The chief economist of BCR also estimated in the report a raise by at least 25 pc of EURIBOR, compared to its present level. “I believe we are in for another hiking of the key interest rate by the European Central Bank, as a means to counteract inflation,” Anghel stated. This could lead to a rise in instalments on loans contracted in the European currency. The bank official further argued that interests on RON loans could not be reduced, on account of inflation. “One cannot have low interests and a high inflation rate. If inflation rises and the National Bank of Romania hikes the key interest rate, this will be reflected right away by ROBOR levels,” Lucian Anghel explained.