Romania Ctrl Bker: Hard Landing Risk Of Economy Is Limited, GDP Seen Near 6% On Yr

Romania’s economy grew by 8.8% in the first half of the year, boosted by a robust 9.3% increase of the gross domestic product in the second half, following a good agricultural year, according to analysts.

Isarescu said that the gradual increase of the key monetary policy rate and the prudential measures adopted by the central bank have limited the risk of a “hard landing” of the Romanian economy.

“The flexible currency has permitted the market to correct through its own mechanisms the over-appreciation of the leu and the National Bank of Romania was able to hike interest rates in seven consecutive sessions, in order to counter inflationary pressures driven by the international turmoil, Isarescu said.

Since October 2007, the central bank has hiked interest rates in seven consecutive sessions by 325 basis points from 7% to 10.25% at present.

Asked whether an 8-9% gross domestic product growth is a sign of economy overheating, Isarescu said he cannot give just a number which shows that.

“I was never in a rush to give numbers that show the degree of economy overheating. I usually present things in a more detailed manner, as they really are. What is overheating after all? It represents a development that substantially exceeds the growth potential, which leads to lack of manpower, rapid wage hikes and inflation,” Isarescu said.

He said there is a different approach for this issue.

“On one hand, we have the agriculture sector where the significant increase in this year’s output was due to natural factors and there are no signs of overheating. On the other hand there is the constructions sector where there are visible signs of overheating such as lack of manpower, substantial increases of construction materials prices and wage hikes. A wise economy should stimulate only the sectors where there is unused potential such as agriculture.