The National Bank has formally shifted to the direct inflation targeting strategy as of this month, vice-governor Cristian Popa told Reuters in an interview.
This would entail an unequivocal commitment to maintain stability of prices on the part of the central bank, using the interest as a monetary policy instrument more often, while the exchange rate targets should become subordinated to the inflationary rate targets.
Although the strategy is largely dependent on transparency and communication, the NBR has yet to make an official announcement for the Romanian public. Central bank officials could not be reached by Ziarul Financiar for comment.
Cristian Popa said the first quarterly inflation report was to be published this month, and was set to explain the inflationary trend in the first three months of this year. The shift to the direct targeting of the inflation will probably be announced only when the first quarter report comes out. The report was initially scheduled for release in July.
What is the role of this report in NBR''s new strategy? The vice-governor says the document will make the monetary policy more predictable and more transparent, due to the inflationary forecasts issued for eight quarters at a time, along with an analysis that will present an outline of the positive prospects and of the risks that can influence the price trend in the period covered by the forecast.
The increased transparency should also be achieved by making public the schedule of the meetings of NBR''s monetary policy board, which means the market will know when it can expect decisions concerning the interest mainly. In just a few words, "inflation targeting" means the bank sets as its sole goal maintaining inflation at a low preset level; that the bank has the necessary free reign to operate to achieve this goal, the necessary instruments, as well as an improved macroeconomic model which allows it to anticipate the inflationary development as accurately as possible for up to two years.
As theory says, the shift to this strategy would mean NBR should let objectives such as the exchange rate, the economic activity or the foreign deficit drop to at least the second place, which could be taken into account only indirectly, to the extent they influence the future inflation.
However, vice-governor Cristian Popa said the National Bank would maintain the "controlled float" for the exchange rate for at least a few years. He reiterated that the NBR did not have a favourite level or interval for the RON''s exchange rate.
At the same time Popa said that the central bank would continue to use the same monetary policy instruments as until now, with both the interest and the exchange rate playing a role in inflation curbing.
After all, the analysts estimate that the almost constant appreciation of the RON over the last five weeks was tolerated by the NBR partly because of the inflationary pressure alleviation effect in terms of import goods prices.
Cristian Popa added that pushing the inflation down to 2-3% over the next 3 or 4 years would require much greater efforts than the disinflation in the last five years.
NBR Governor Mugur Isarescu recently mentioned the possibility of inflation going up to 8% this year, and at the same time said he did not feel modifying the 7% initial target was necessary since the 8% would actually be within a plus/minus 1% fluctuation interval. The inflation target for 2006 remains 5%, depending on the government''s decision to increase the VAT or not.
Pentru alte știri, analize, articole și informații din business în timp real urmărește Ziarul Financiar pe WhatsApp Channels
