The National Bank of Romania (NBR) Governor, Mugur Isarescu, is hoping next year's inflation level will not exceed 13%, although the 2003 budget draft estimates a 14% level. The Governor also believes this index will continue to post annual decreases, down to 9% in 2004 and even 7% in 2005.
Isarescu has a simple explanation for his optimistic forecasts: "I picked 13% because I believe in 'lucky numbers'. Moreover, 2003 is the thirteenth year of economic reform," the NBR Governor told the "Romanian banking forum" organised by the FinMedia conferences.
According to Isarescu, the central bank could step on the exchange rate and curb inflation to less than 18% this year, but believes this option is not sustainable. Furthermore, he feels "... we must not have an oscillating evolution anymore. Less than 10% for 2004 is a realistic objective. We simply have to hold on to the same boring consistence," Isarescu said.
The NBR official restated the bank's intention to start an inflation pegging policy as of 2004. "This shift needs support from the public," says the NBR Governor.
The inflation pegging strategy will enable interventions on the exchange rate evolution, as it will no longer be a fixed element and the payment balance will be equilibrated.
"Thanks to the overperformance posted in 2002 and helped by the evolution of the euro exchange rate, Romania has made up for the ground it lost in 2002 and managed to get closer to the inflation rate forecast in the medium term Strategy," Isarescu added.
The NBR official reiterated his satisfaction for not having established a Currency Board in 1999 and feels this decision will benefit Romania in the long term. Although a Currency Board may have led to faster disinflation, the NBR officials back then opted for a gradual inflation cut.
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