Romania's inflation could narrow to 5.4% in December 2008 helped by the leu, BCR says

Annual inflation could lower to 5.4 percent this year meaning the Central Bank of Romania (BCR) would again miss the inflation target, an estimate made by Romania's largest lender by assets Banca Comerciala Romana (BCR), shows.

BNR's 2008 inflation target refers to 3.8 percent, plus or minus one percentage point. Romania witnessed a 6.57 percent inflation rate at the end of 2007.

BCR believes a key role in the disinflation process will be played by the evolution of Romania's national currency. The leu could regain some of the ground lost against the euro and should stand at a 3.50 lei/euro exchange rate, in the second part of the year.

Nevertheless, this will happen if foreign investors regain confidence in the currencies of the emerging states. BCR noted the central bank strengthened the monetary policy by increasing the key interest rate to 8 percent and by sterilizing the excessive liquidity. Yet, the investors' confidence in the leu will play a major role in this year's inflation rate.

Most of the analysts in Romania believe BNR will once again increase the monetary policy interest by 0.5 to 1 percent. The announcement is expected on February 4.

BCR analysts say Romania's inflation should lower to 4.5 percent in 2009. The higher prices for foodstuff, services widened last year's annual inflation by more that 1.5 points over the target aimed by BNR, to 6.57 percent, the National Statistics Institute said.

Inflation in Romania will be difficult to temper owing to pressures stemming from ascendant trend seen in salaries which will continue to grow as a result of workforce migration, central bank governor, Mugur Isarescu previously said.

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