NBR forecast: Prices will increase by 3.5% in 2010

The inflation forecast of the NBR for this year was revised upwards from 2.6% to 3.5%, while for 2011, the Central Bank predicts an inflation rate of 2.7%, according to the governor of the Central Bank, Mugur Isărescu.

On Friday he presented the inflation report, saying that one of the reasons that affected the forecast was the rise in tobacco excises.

The weights of the various components of the consumer price index are as follows: 6.5% tobacco, 4.5% in fuel, 3.5% in vegetables and eggs 1.5% for managed prices, according to the NBR.

The inflation target for 2011 was reconfirmed by the governor of the NBR.

• Uncertainty on the evolution of inflation

Even though the political situation has improved, Mugur Isărescu said 2010 would be a difficult year, but the forecasts of the Central Bank remain optimistic. He feels that the evolution of inflation in Romania remains uncertain.

According to Isărescu, inflation forecasts had to be revised this year.

• The resumption of lending will not have a significant impact on inflation

Discussing the resumption of lending, the governor of the NBR said that this would not have a significant impact on inflation: "We don"t see lending creating pressure, because banks are rather reticent. Sooner or later, lending will resume, to an extent that will differ from one bank to the next, but this will not have a major impact on inflation".

In the opinion of the governor of the NBR, the 5.9% figure of the budget deficit for 2010, which is the key of Romania"s agreement with the IMF, the EC and the World Bank is "reasonable".

He added that keeping the budget deficit for 2009 within the limits agreed wit the IMF, the EC and the WB could be one potential cause for the abating of inflation. The governor also said that the negative deviation of the GDP will be affected by the low competition on the production factors market, dropping prices, and the shrinking risk aversion of foreign investors.

As to what concerns the exchange rate, the NBR official said that a strong volatility of the exchange rate is beneficial for the economy, reminding that the NBR does not subscribe to the free-floating model for the leu.