BNR and IMF officials warn of sudden market correction

Several warnings issued recently by National Bank of Romania (BNR) and International Monetary Fund (IMF) officials prove the two institutions are concerned about a significant depreciation of the leu and, subsequently, greater pressures on inflation. Furthermore, a possible lowering of Romania's rating, currently being considered by rating agency Standard&Poor's, is likely to lead to higher costs for loans.

" BNR’s prognosis on the inflation rate at the end of the year, of 5.7 percent, is extremely conservative, given an increase in prices by almost 7 percent in the past twelve months," according to IMF's Regional Representative, Juan Fernandez Ansola. He added that Romanian authorities should tighten economic policies.

Central Bank Governor, Mugur Isarescu, issued a similar warning last week.

"These messages are the same. However, I do not think that year-end inflation will exceed by much the 5.7 percent. The central bank would be making a fool of itself if the gap between the inflation rate and the prognosis were too wide," according to the President of Chartered Financial Analyst (CFA), Dragos Cabat.

The inflation target for 2007 was set at 4 percent, +/- one percentage point. The new BNR prognosis, of 5.7 percent, means missing the inflation rate by 0.7 percent.