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Romania's Isarescu sees leu, wages as inflation risks

Romania's average annual inflation rate this year will be below 5% although oil prices, the exchange rate and higher wages are the main threats to central bank targets, Governor Mugur Isarescu said.

„We have three uncertainties,” Isarescu told reporters at a news conference in Bucharest today. „We don't know how the prices of goods will evolve, as it depends on the agricultural year and other factors. Gas and oil prices have helped and hopefully will continue to help. And finally the evolution of the exchange rate. We don't know how long this love for the leu will last.” The leu gained 6.3% against the euro and 14% against the dollar last year amid an influx of cash as the country prepared to join the European Union on January 1.

The leu's gain was „significant” in keeping prices in check last year, making items gauged in dollars and euros, such as rent and telephone bills, cheaper for Romanians. The National Bank of Romania last week cut its key interest rate to 8% from 8.75% after the annual inflation rate slowed to 4% in January, the lowest since the fall of communism in 1989. The central bank's main goal this year is to continue slowing inflation after the annual rate fell to 4.9% at the end of last year from 8.4% a year earlier, Isarescu said. He said the central bank may change some aspects of some of its targets because the method of calculating the consumer price index was changed last week. Isarescu also said the current-account deficit last year, still to be released in detail by the central bank, was about 10.5% of GDP. (Bloomberg)