NBR Confirms Inflation’s Decrease

The National Bank of Romania (NBR) decided to reduce the intervention interest rate by 0.5 %, until 17.75%. The decision has been taken in order to validate the pronounced decreasing process of the inflation.

Two weeks after deciding not to intervene on the currency market, the National Bank summed up: the transactions on the foreign currency market increased, and the national currency rate varied more. NBR expects an increase of the direct foreign investments and a more pronounced decrease of the inflation. The Central Bank expects the foreign direct investments to increase more also because of the Japan Credit Rating agency decision of improving Romania’s long-term ratings. "Improving Romania’s investment level will contribute to amplifying the foreign direct and ministry investments, which will lead to the consolidation of the appreciation tendency of the national currency", says a statement of the Central Bank.

PRUDENCE

Last 12 months’ inflation rate decreased to 10.8% in October 2004 and it is expected to decrease significantly in November and December. "To validate this de-inflation process, the NBR Administration Council decided to reduce the intervention interest rate by 0.5%, to 17.75%", says the statement. The commercial banks are expected to adopt the same measure as NBR. They will have to decrease the interests for the deposit and credit interests as well.

However, the NBR Administration Council decided to maintain the prudence for the monetary strategy for attaining the inflation targets, including a longer period perspective. The decision has been taken because consuming will increase in the last months of the year, and because of a new increase of the utility prices for the beginning of next year.

ESTIMATIONS

According to the estimations in Romania’s Preadherence Economical Program, more than half of the inflation rate will be represented by the increase in the administrated prices, at least for the first part of 2005 - 2007 period. The increase in the prices of the recently privatized or in course of privatization energetic sectors is also an element with inflation potential.

The de-inflation program considers the attaining a target of 3%-4% in 2007, taking into account that the inflation rate will step down to 7% in 2005 and 5% in 2006.