Romania’s central bank sees risk to the government’s CPI target
DEBRECEN, Hungary (Reuters) – Romania’s inflation may not have peaked in August and rising food prices and a perceived depreciation of the leu pose risks to the central bank’s inflation goal, governor Mugur Isarescu told Reuters. Annual inflation jumped to 5 percent in August, above expectations. «There are two major risks (to our CPI target), actually both worked in badly, it was a bad combination in August,» Isarescu said in an interview on Saturday on the sidelines of a conference in Debrecen, eastern Hungary. He said one factor was «the delayed effects of the drought particularly on food (prices) and particularly on bread, and the second is the perception of (currency) depreciation despite the fact that it (the exchange rate) is returning to the beginning of the year level.» But Isarescu said he hoped the bank would meet its inflation target of 3-5 percent for December 2007. When asked if the bank intervened recently to support the leu, Isarescu said it prefers not to comment on its forex operations. But he added: «We never said that we have (a) free floating (currency) and we always said that we keep this possibility of intervening any time on the forex market.» Isarescu said the leu now was at around the level where it had been at the beginning of the year. «I am referring to the general level… now it is the level of the beginning of the year, which was in my view more sustainable than what’s (been) happening in the meantime, but the public is perceiving this like a depreciation,» he said. The bank meets next on September 26. A Reuters poll earlier this month showed analysts expect rates to stay on hold at 7 percent. On inflation, Isarescu said: «I do hope that (5 percent) to be the peak but having in view the low inflation in September last year and the base effect it’s possible that August will not be the peak.» He said his main concern was wage increases, especially in the private sector. Wages are being driven up by emigration, leaving a shortage of labor within Romania. Isarescu said the central bank had limited tools to offset the inflationary impact and excessive use of the interest rate would strengthen the currency and erode competitiveness. «We have inflation targets but we have to look to the sustainability of the process. .. if you are deteriorating too much on the current account, losing competitiveness by monetary policy actions, you have also to judge twice if this is (the right thing). The key element now for keeping the macro balance in Romania is fiscal policy,» he added.
