NBR looks at Czech expertise

The National Bank of Romania (NBR) will announce the inflationary target for 2004 by the end of next year. This target is to be the main goal of the monetary policies and will be attained by applying a model similar to the one used by the Czech Republic, according to NBR Governor Mugur Isarescu. The central bank governor made these statements on Tuesday, during the visit of Zdenek Tuma, Governor of the Czech National Bank (CNB).
“The model used by the CNB in its inflation-curbing policies shows us what is going to happen in Romania in a matter of years. NBR wants to set the inflationary target for 2004 by the end of next year,” Mugur Isarescu specified.
The inflation pegging strategy was first applied by several Anglo-Saxon central banks in the ’90s. This strategy has the central bank setting only one goal, that is attaining the inflationary target, which can be either a figure or a crawling peg, with the bank less concerned with the balance of payments-related problems, as it is NBR’s case.
The NBR Governor said that the central bank’s main concern for the time being was avoiding the overvaluation of the domestic currency in order to experience no problems with the balance of payments deficit, as it happened in 1999. He explained NBR’s “big dilemma” was the real appreciation of the ROL, the 3% agreed upon early this year. “We have to see whether this 3% level is sustainable,” Isarescu said.
The Czech National Bank began applying the inflation pegging strategy in 1999, when this indicator amounted to less than 2%. Zdenek Tuma says that although the inflationary target is very important, what really matters is the decrease dynamics, specifying the Czech Republic has yet to attain its target.
Inflation pegging entails a permanent explanation of the causes that led to slip-ups in such a language that both the market and the public opinion could understand.
The Czech Republic’s goal is to attain a plus/minus one percentage point inflation compared with the 2% level in the eurozone until 2005 at the latest. The CNB chose to tie the inflationary target to a specific timeline, instead of annual levels, but uses “crawling pegs” for the annual inflation.