Romania: May Inflation Report Summary
Overview:
Although inflation accelerated in Q1, the recent stabilisation of the currency and indications that growth is extremely weak should allow the central bank to continue cutting interest rates. The medium-term projection in the May Inflation Report is that inflation will be 2.8% at end-2010, 0.4 percentage points above the February forecast for the same period and below the mid-point of the 3.5% plus or minus one per cent inflation target. If the Leu continues to remain stable/strengthen and growth remains well below trend over the next few quarters the central bank can follow its May 50 bps rate cut with further easing. It will remain cautious in doing so, however, not wishing to reduce the interest rate differential too fast and destabilise the currency and hoping too that inflation expectations moderate as inflation eases.