ING Says Inflation Could Top 6% End-December

Despite a basis scenario pointing to a year-end inflation of 4.5% in 2011, slightly above the central bank's upper band of 4%, ING analysts consider the annual inflation could come in at 6% to 8% in December.

"An 8.5% increase in food prices could contribute by another 1.5 percentage points to inflation. A further impact, of 1.2 percentage points, could be triggered by the cancellation of thermal energy subsidies," said Nicolae Chidesciuc, chief economist at ING Bank Romania.

Additional risks to a high inflation include a possible depreciation of stability of the national currency against the euro in 2011, versus a slight appreciation predicted by ING.

"Inflationary pressures are very strong in Romania and they will probably continue to be so in 2012 as well. Romania has raised the wages in the public sector in 2011 and the private sector could follow suit, which would influence the inflation rate in 2012," ING said.

The analysts said the central bank is unlikely to resume its monetary policy easing in 2011, due to high inflation.

The central bank estimated the annual inflation would ease to 6.8% after the first quarter, from 7.96% in December last year. The year-end inflation is predicted at 3.4%.

Thursday, the central bank has left its main interest rate at a record low of 6.25% a year for the sixth consecutive time. The bank also decided to maintain the current levels of the minimum reserve requirements at 15% for Romanian leu-denominated liabilities and 25% for foreign currency liabilities.

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