Romania ‘09 Key Interest Rate Seen Scaling Down In Line With Inflation – Ctrl Bk

“A smooth trajectory of the key interest is better than one which sees sudden movements. At least the data we have so far indicates the inflation’s trajectory is definitely down. In my opinion, a trajectory of the interest rate in line with the inflation trajectory, without sudden movements, is better than any other version…I don’t see any reason for sudden movements, because we have no major doubts regarding the trajectory of prices. As to food prices, their dynamic will probably depend on the drought as well,” Isarescu told Mediafax in an interview.

 

Romanian consumer price index rose 0.27% in April compared with the previous month, and the annual inflation fell to 6.45 % from 6.71% end-March.

 

Romania's central bank targets an inflation of 3.5%, with a variation band of one percentage point.

 

The central bank cut its annual key rate twice since the beginning of the year, down to 9.5% from 10.25% in December 2008.

 

“I maintain my belief that a country such as Romania cannot afford real (interest) rates above 3%. The real rate in our macroeconomic model is even lower than that,” Isarescu told reporters.

 

Romania agreed end-March with the International Monetary Fund, the European Union and other international institutions a EUR19.95 billion financial package, supported by a EUR12.95 billion IMF loan under a two-year standby arrangement.

 

Under the agreement, Romania has to meet inflation performance criteria, among others. The inflation rate has to be at 4.5% end 2009, and it has to fall to 2.5% by the end of 2010.