Wednesday, February 11, 2009

Romanian Inflation Rate Rose on Leu in January, Survey Shows

By Adam Brown

Feb. 11 (Bloomberg) -- Romania’s inflation rate rose in January as the leu’s depreciation boosted the price of rent, gasoline, telephone bills and other items, according to a survey of economists.

The annual rate increased to 6.5 percent in January from 6.3 percent in December, the lowest rate of last year, according to a Bloomberg survey of nine analysts. Consumer prices probably rose 1 percent in the month, after a 0.2 percent advance in December. The National Statistics Institute will release the report at 10 a.m. tomorrow in Bucharest.

“January likely brought a high inflation rate,” Florin Eugen Sinca, a macroeconomic analyst at Banca Comerciala Romana SA in Bucharest said in an e-mail. “The disinflation process still remains a problem. The central bank is aware of this issue and decided to cut the key rate by only” a quarter of a percentage point at its last monetary policy meeting.

Romania’s leu has weakened more than 14 percent against the euro in the past year as international investors pull out of markets seen as carrying higher risk amid global financial turmoil. A weaker leu immediately raises local prices of gasoline, rent, telephone bills and other items which are traditionally gauged in euros and paid in lei.

Banca Nationala a Romaniei Governor Mugur Isarescu predicted on Feb. 6 that the inflation rate will fall to 4.5 percent at the end of this year as economic growth cools. The government predicts 2.5 percent economic growth this year, compared with about 7.8 percent last year.

Rate Cut

The central bank cut its key interest rate on Feb. 4 to 10 percent, the first reduction in more than 18 months. It forecast “a continuation of the disinflation process, though the outlook is gripped by the persistence of major uncertainties related to the volatility of the internal and external macroeconomic developments.”

The International Monetary Fund on the same day said Romania’s central bank should continue to focus on its fight against inflation even as economic growth slows or contracts this year.

The central bank “has little room to ease monetary policy until a credible macroeconomic policy package is in place,” the IMF said after a nine-day visit to Bucharest. “Even then, the central bank should only move to gradual policy easing if balance of payments pressures abate.”

The Feb. 4 interest rate cut followed seven increases in the previous 15 months, giving the country the highest key rate in the European Union, as the inflation rate rose from a 17-year low of 3.7 percent in March 2007 to last year’s peak of 9 percent in July.

To contact the reporter on this story: Adam Brown in Bucharest at abrown23@bloomberg.net

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