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Romania CPI can drop below 5% in H2 2008 - IMF

Romania’s annual inflation could fall below 5% in the H2 of next year if the central bank hikes rates, the International Monetary Fund’s representative said on Thursday.

Inflation jumped to 6.8% in October from September’s 6%, due to strong pressure from food prices and energy rises, boosting expectations for a rate increase next year. The central bank raised interest rates by 50 basis points to 7.5% at its board meeting on Oct. 31, reversing some of the monetary easing earlier this year. “Probably, in the second half of 2008 we will see inflation returning within a variation band of below 5% if monetary policy rates are increased,” Juan Jose Fernandez-Ansola, the Fund’s representative to Romania and Bulgaria was quoted by state news agency Rompres as saying.

Fernandez-Ansola, who said inflation remains a problem in the new European Union member, said the central bank would need support from fiscal policies to fight price rises. “From a legal point of view, the bank is responsible for containing prices at low levels ... but if it will be left (to do this job) alone ... this can turn into a difficult problem for the country given that half of what happens in the Romanian economy is controlled through fiscal policies.”

The central bank raised its annual inflation forecast last month to 5.7% in December from 3.9% previously, citing higher food prices and a worsening outlook for the local leu currency. The bank targets inflation at 3-5% this year and 2.8-4.8% next. (guardian.co.uk)