Isarescu foresees inflation up to 5.9 percent

“By the end of this quarter, the inflation rate will exceed 8 percent, but will a decline subsequently. This inflation hunchback is temporary, but could turn into a spiral. We are concerned about excessive growth,” the National Bank of Romania (BNR) Governor, Mugur Isarescu, warned yesterday, while introducing the quarterly inflation report.

The increase in the forecast for inflation, by as much as 1.6 percentage points, came as no surprise, but repeated requests of the government by Isarescu to strengthen economic policies shows extra pressures on macroeconomic indicators.

Earlier this week, BNR and the government decided to use a mix of economic policies to allow a correction on inflation and sound economic growth of 6 percent.

Salary rises exceeding productivity, a more relaxed budget due to an election year, higher than expected inflation, and higher oil prices are the main risks identified by the central bank this year.

Furthermore, the depreciation of the leu is making things more difficult for the central bank. In spite of these challenges, BNR did not change its inflation target of 3.8 percent (+/- 1 percent). “Although estimates show that, based on current circumstances, the inflation target will not be met, we have decided not to change that target, but rather to tighten the monetary policy,” Isarescu said.