Romanian 2011 Inflation May Be Below Central Bank Forecast

Romania’s inflation rate may end the year at less than the central bank’s forecast, bolstering expectations that policy makers will continue to lower interest rates to spur economic growth.

The rate might fall below the 3.3 percent forecast for this year from 3.55 percent in October, Governor Mugur Isarescu said in a speech at a seminar in Bucharest. The bank targets an inflation of 3 percent, plus or minus 1 percentage point, for this year and next.

“The December annual rate might be lower than our latest forecast, which was deemed optimistic,” Isarescu said. “The exchange rate has been relatively stable considering the obvious tensions from the euro area which led to stronger declines of eastern European currencies.”

The inflation rate, which has fallen near two-decade lows since July, prompted the central bank to cut the key rate last month and will probably enter the central bank’s target for the first time in five years, after the impact of a 5 percentage- point government tax increase last year dissipated.

‘Some Doubt’

“While we have some doubt” that the rate will fall below the forecast, “and we’re currently forecasting year-end consumer price growth of 3.5 percent, the dovish statement will likely reinforce rate-cut expectations,” Vlad Muscalu, a Bucharest-based economist at ING Bank Romania SA, wrote in a note to clients today.

The leu was little changed at 4.3560 per euro as of 1:18 p.m. in Bucharest trading, while the Bucharest Stock Exchange’s benchmark BET Index gained 1.1 percent to 4,395.21.

Romanian policy makers resumed cutting rates on Nov. 2, bringing borrowing costs to a record-low 6 percent for the first time in 18 months to spur a weak economic recovery after a two- year recession.

An inflation slowdown isn’t enough to warrant faster interest-rate changes, Deputy Governor Cristian Popa also said today. Any future rate reduction must be carefully weighted, he said.

The central bank may act to curb “excessive” volatility of the leu stemming from pressure generated by Europe’s debt crisis, Popa told reporters later after the event in Bucharest. Growth may be slower in 2012 than the bank’s current forecast of 2.3 percent, he said.

Central bankers left rates unchanged after a July 2010 increase in the value-added tax rate to meet international bailout pledges boosted inflation to the fastest in two years. Before that, the bank lowered borrowing costs four times to combat the worst recession in two decades.

Romania’s inflation rate unexpectedly rose in October to for the first time in five months 3.55 percent from 3.45 percent in September on higher heating bills and food costs, the National Statistics Institute said on Nov. 10.

“Vegetable and fruit prices are rebounding after a bumper harvest in the autumn triggered decreases, while administered prices will continue their adjustment,” Isarescu also said.

To contact the reporters on this story: Andra Timu in Bucharest at atimu@bloomberg.net; Irina Savu in Bucharest at isavu@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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