The National Bank will maintain the restrictive monetary conditions even when disinflation really happens, NBR Governor Mugur Isarescu yesterday stated during the presentation of the first quarter inflation report.
“Even when the decline in prices occurs, we will still remain cautious,” Isarescu said. The central bank has every reason to be cautious as long as it has just negatively revised the inflationary forecast for the end of the year, to 6.8% from the 6.5% early in the year, with the new level being 1.8% higher than the annual target kept at 5%.
The plans were first disrupted by the introduction of the vice tax, which makes cigarettes and alcohol more expensive. NBR estimates that the impact on the projected inflationary rate for 2006 is 1.1%.
“NBR”s concern about these increases is justified by both their major impact on the inflation rate and by the possibility of inflationary expectations likely to jeopardise the disinflation trend even on longer term,” the quarterly report of the central bank says.
After all, one of the main risks mentioned by the NBR in relation to the fight with inflation is precisely that of the inflationary expectations of the public and of the business community, which persist and “have worsened” even, according to the central bank research.
“The public still does not believe in an inflation decline and has good reason not to,” Isarescu said. He added the NBR did not find, during the monetary policy meeting of the Board of Governors this week or in March for that matter, “such a significant change as to warrant an modification of the interest rate.”
“I do not see a high frequency of interest rate changes except for those periods when a trend launches,” the governor stated. Starting February, NBR”s monetary policy interest has kept at 8.5% a year, despite expectations on the market for a possible rate increase.