Romania’s central bank raised its inflation forecasts through next year as a jump in food prices prompted policy makers to “carefully” look at ways to tighten monetary policy during a time of faltering economic growth.
Inflation will end this year at 5.1 percent, above the bank’s target, and slow to 3.5 percent at the end of 2013, Banca Nationala a Romaniei Governor Mugur Isarescu said in a news conference on the bank’s quarterly inflation report in Bucharest today. That compares with an Aug. 6 forecast of 3.2 percent for this year and 3 percent for end-2013.
“This year’s target will be exceeded mainly because of an increase in volatile prices, which the central bank cannot control through its interest-rate policy,” Isarescu said. “We have a demand deficit that will permanently drag the inflation rate down. We have to think carefully about the policy tightening because of the significant demand deficit.”
Romanian policy makers have kept interest rates unchanged at a meeting on Nov. 2, this year’s last, to aid a faltering economic recovery and turned to other means to tighten monetary policy as inflation jumped temporarily to a one-year high.
The central bank maintained a cap on funding to lenders at 4 billion lei ($1.1 billion) for a second week on Nov. 5, compared with 5 billion lei it offered on Oct. 22, 6 billion lei on Oct. 8 and 12.6 billion lei on Oct. 1.
Isarescu said the central bank is limiting liquidity at weekly repurchase operations and intervening in the foreign-exchange market to prop up the currency, which reflects a tightening of monetary policy. The recent pickup in inflation is “transitory,” he said.
Inflation accelerated more than forecast to 5.3 percent, the fastest in more than a year in September, because of rising food and energy costs, above the central bank’s third-quarter forecast of 3.5 percent.
The bank has a 2012 inflation target of 2 percent to 4 percent and a stationary target of 2.5 percent, plus or minus one percentage point, from 2013. The median estimate of 11 economists surveyed by Bloomberg was for inflation to end this year at 5.2 percent.
The inflation rate will peak at 5.6 percent in the second quarter of next year because of higher food prices, which have a 33 percent weight in Romania’s inflation basket, one of the highest in Europe, Isarescu said. The rate will drop within the targeted band in the first quarter of 2014, according to the bank’s report.