IMF says Romania may need more action on inflation

Food

Romania may need tighter monetary policy because of the rapid inflation surge in recent months, the International Monetary Fund said on Tuesday.

Inflation jumped from a post-communist low of 3.7% in March 2007 to a nearly two-year high of 8.6% last month, as mounting wages and domestic demand added to pressures from global rises in food and energy costs.

The central bank has hiked its benchmark interest rate in recent months to 9.5% in a bid to quell inflationary pressures in Romania, which joined the European Union last year. The bank targets inflation at 2.8-4.8% this year.

“We believe more monetary tightening may be needed given the negative inflation surprises in recent months,” Albert Jaeger, IMF mission chief for Romania and Bulgaria told reporters at the end of annual consultations. “But we see good chance that inflation will go back to target range if appropriate monetary and fiscal policies are implemented. We see inflation going back to range in 2009.” Jaeger told Reuters he estimated year-end price growth at 6.5%, above current market expectations and the central bank’s 5.9% forecast. The IMF also said it was worried about budget spending plans and “somewhat optimistic” revenue forecasts. “Given the approach of (local and parliamentary) elections we see serious fiscal risks ... that the fiscal deficit in 2008 could come out higher than projected,” Jaeger said.

The centrist minority government targets a consolidated shortfall of 2.3% of gross domestic product this year. The Fund said the government should target a lower deficit and that revenues may be overestimated by 1-1.5% of GDP. The IMF sees Romania’s economy growing by around 6% this year and 4.7% in 2009. (Reuters)

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