Central bank in Bucharest fears runaway inflation may put country’s euro entry at risk

BUCHAREST (Reuters) – Romania’s goal of joining the eurozone in 2014 might be at risk unless inflation is reduced in a sustainable way this year and next, central bank Governor Mugur Isarescu said yesterday. «Without a sustainable reduction of inflation in 2008 and 2009, I am afraid that euro adoption in 2014 may not be achieved,» Isarescu told reporters on the sidelines of a financial seminar. Romania, which joined the European Union in 2007, targets inflation of 2.8-4.8 percent for the end of this year and 2.5-4.5 percent in 2009. Inflation has accelerated in Romania in recent months due to voracious domestic consumption and rising food and energy costs. The centrist government has been chided by international observers for its loose fiscal stance and not doing enough to control the consumption that is overheating the economy. It is also likely to breach this year’s target as the central bank expects annual price growth to hit 5.9 percent in December. The bank expects price growth to peak in March at 8.3 percent. A sharp fall in the local leu currency fanned further concerns about inflation, after the currency hit its lowest level in three years in January at 3.8385 per euro because of concerns about Romania’s economic fundamentals. Isarescu welcomed a bid by the government to cut this year’s budget deficit target. «I understood that (budget) deficit reduction would be significant. At this moment, even the message is important. (Even a) 0.1 or 0.2 (percentage point) reduction would be significant provided that it materializes,» Isarescu said. Finance Minister Varujan Vosganian said earlier this month he will propose a cut in this year’s budget gap target to some 2 percent of gross domestic product in international terms. Romania targets a shortfall of 2.7 percent of GDP this year, but the European Commission has said its calculations put it above its 3 percent Maastricht criterion cap.