New inflation target

The inflation target for this year was revised for the second time, attaining a level standing around 37-38%, up from 32%, while interest rates are expected to increase again, NBR (National Bank of Romania) intending to take measures in order to avoid real negative interest rates.

“We do not expect a sudden interest increase, but interest rates have to adapt to the new inflation target,” NBR vice-governor Cristian Popa said.

Over the first seven months, inflation reached a 24.1% level; for August, it is expected to be below 2%. The inflation rate was initially established at 27%.

At present, interests rates stand at 30-38% for deposits, while for government bonds acquired by the population annual interest rates are of about 40%. Bankers believe that interests will attain this autumn a level situated between 40 and 50%.

The dollar/leu exchange rate is 1,000 lei higher than initially established. On Friday, the exchange rate was of 23,019 lei for one dollar, the leu’s depreciation since the beginning of the year being of 26.09%.

The inflation goal has been “sacrificed” this year in order to favour the other three major objectives – economic growth, unemployment and payment balance deficit, Premier Mugur Isarescu announced.

“The objective related to economic growth of 1.5% stands good chances of being achieved, as industrial output has increased by 6.5% and is to take over the minuses registered by agriculture,” the Prime Minister said. However, his optimism was more temperate as to this year’s economic growth.

Isarescu mentioned that agricultural output went down 20% following the drought, and this decrease will lead to a 3% GDP drop in the first half. The drought caused Romania damages worth 500 million dollars.