Saturday, May 2, 2009

Romania price slide as expected but still slow-cbanker

BUCHAREST, April 30 (Reuters) - Inflation in Romania is falling in line with the central bank's expectations but the drop is still slow and domestic demand is stronger than markets had expected, Deputy Governor Cristian Popa said on Thursday.

The bank has eased rates -- some of the highest in the European Union -- by only 25 basis points since the global crisis deepened last year, but most analysts expect it to deliver a second cut this year at a meeting on May 6.

Policymakers are struggling to balance concerns over still high price growth and currency weakness, with the need to prop up the economy in one of the EU's poorest states -- the subject of a 20 billion euro IMF bailout earlier this year.

Romania's annual inflation fell to 6.7 percent in March from February's 6.9 percent. This compared with a peak of 9 percent scored in July 2008, when the economy was growing fast thanks to voracious domestic spending.

'The evolution of disinflation is still slow,' Popa told reporters on the sidelines of a financial seminar. 'Aggregated domestic demand has not fallen enough (to bring inflation down faster).'

'The moderate reduction so far attests ... to the fact that the slowdown in demand has been less pronounced than ... indicated by market ... forecasts,' he added in a statement sent to Reuters.

The bank's target for inflation this year is a corridor of 2.5-4.5 percent.

Global turmoil has hurt lending and weakened the leu sharply, thus hitting demand for imports. However, inflation in Romania eased less than in most of its regional peers.

Popa said a weaker currency and higher regulated prices were among reasons behind slower declines in consumer price growth, in addition to persistent demand.

He gave no indication of what the central bank's expectations were for domestic demand.

The leu fell sharply since the crisis escalated in October to reach a record low of 4.353 per euro, but has since stabilised also with the help of an IMF-led deal secured last month. It showed little reaction to Popa's comments.

'I agree with him, but this doesn't mean they will not cut rates, because a central bank needs to be pro-active and it is likely that domestic demand will contract much faster in the future,' said Nicolaie Alexandru-Chidesciuc of ING ( ING - news -people ) Bank.

(Reporting by Luiza Ilie; Writing by Marius Zaharia: Editing by Patrick Graham) Keywords: ROMANIA CBANK/

(justyna.pawlak@reuters.com ; +40 21 3158320; Reuters Messaging: justyna.pawlak.reuters.com@reuters.net )

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