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| ROMANIAN ECONOMIC FORECASTS 10/04/2008 |
| (2008-04-10) |
| Last updated: 2008-04-11 14:45 EET |
Romania intends to replace its national currency, the leu, with the Euro in 2014. Can this target be reached? This is what the governor of the National Bank of Romania, Mugur Isarescu, says:
“We would like to reverse inflation trends towards a 3% level by 2010. Unless we manage to do that, Romania will find it very hard to adopt the Euro in 2014. This is why the central bank constantly emphasises the need to carry on with the fight against inflation. This is a lasting war, rather than a single battle. So we must be resolute in this fight. The central bank will be so, in any case, because this is its role, but it is very difficult for this challenge to be handled with monetary policy instruments alone.”
Mugur Isarescu believes that, by the end of this year, the inflation rate will most likely range from 5 to 6%. As for the currency exchange rate, Isarescu feels that the current rate is more appropriate than the one reported last year, when the leu had grown too strong against both the euro and the US dollar. Unfortunately, the anti-inflation policy of the central bank is restricted, as the governor pointed out, to modifications of the key interest rate. And this rate has been repeatedly raised since last year, which has prompted commercial banks to increase their own interests for both credits and deposits.
This is how annual interest rates of 10% or more are once again reported on the Romanian market, which supports the National Bank's endeavour to slow down the expansion of the crediting sector. This goal is pursued precisely because the recent high inflation rate, entailed by last year's drought and the developments on the international oil and foodstuff markets, can only be checked by countering the increase in domestic demand. In its turn, demand is encouraged by the growing household incomes and the increasingly massive use of loans. Since there is nothing that the central bank can do about household incomes, the only option it has is to make loans more expensive, in a move to cut down on Romanians' appetite for consumption. The higher deposit interests are also helpful, although to a smaller extent, as they encourage savings. But the executive manager of the Applied Economics Group Liviu Voinea is not too optimistic when it comes to the effects of these measures:
“In my opinion, these measures will not be efficient, just as inefficient as the previous key interest rises. The main reason for this is that inflation in Romania is primarily of a structural, rather than monetary nature, so the monetary mechanisms available to the National Bank cannot tackle structural problems which should be approached by the Government, through budgetary and fiscal policies.”
As mentioned before, Mugur Isarescu believes however that this year's inflation will stand between 5 and 6 %, and will reach 3.9 % in 2009. But the International Monetary Fund forecasts an average inflation rate of 7% this year and 5.1 % in 2009. IMF experts also expect Romania's economic growth rate to slow down to 5.4 % as against 6 % in 2007. This decrease, as well as the surge in inflation, take place as the IMF forecasts a significant downturn of the global economic growth and a global inflation rise, against the backdrop of the increasingly evident recession in the United States.
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