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| Economic Forecasts for Romania |
| (2011-07-18) |
| Last updated: 2011-07-20 20:20 EET |
The head of the Romanian Central Bank has estimated that in October, when the National Institute of Statistics is to issue its September inflation report, Romania’s annual inflation rate may be below 4%. Isarescu is also optimistic regarding the bankers’ decision to curb interest rates on Leu-denominated loans.
Romania will no longer have the highest inflation rate in the EU, given that inflation is expected to drop to 5% in August, says the governor of the Romanian Central Bank, Mugur Isarescu. The chairmen of several banks operating in Romania have accepted Isarescu’s invitation to hold a debate on this issue, aimed at analyzing the Romanian economy.
The conclusions leave enough room for optimism. The governor believes that the present inflation rate, leveling out at about 8%, is the result of soaring food prices, which started mounting artificially and unjustifiably following the VAT increase from 19 to 24%.
Mugur Isarescu expects that the good farm yield estimated for this year should bring about significant price slumps by autumn.
Mugur Isarescu: “I don’t rule out the possibility that the inflation rate should drop below 4% in early October. Prices for vegetables, fruit and potatoes might continue to drop. Such might be the impact of an agricultural year that looks promising ahead”.
Foodstuff prices account for 37% of the consumer price index in Romania. A drop in food prices is good news and will affect the annual inflation rate, given that subsidies for thermal energy are to be discarded as of autumn, with major consequences on all prices.
Considering all these aspects, the expectations of the Romanian Central Bank for the coming months include a downward trend for the inflation rate, a drop in interest rates on Leu-denominated loans, both for individual and corporate borrowers. Isarescu believes interest rates, which currently stand at about 12%, twice the monetary policy rate of the Romanian Central Bank, might be curbed, against the backdrop of mounting trust in the disinflation process in Romania.
Leu denominated loans would thus see a major boost, which is all the better given that inflation in the Eurozone entails an increase of interest rates on euro-denominated deposits and loans. Recent statistics concerning the Romania Property Fund Limited also show evidence of economic growth.
The Fund has recorded a profit of some 130 million euros, by 2.5 more compared to the same period of 2010. At the end of June, the Romania Property Fund Limited had nearly 9,900 shareholders, with the largest share package of 18.9% held by the Ministry of Public Finance.
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