The NBR lowered the inflation forecast to 4.6%

The Romanian National Bank (NBR) yesterday revised the inflation forecast downward, for the end of the year, from 5.1% to 4.6%, and the one for 2012, from 3.6% to 3.5%, Mugur Isărescu, the governor of the NBR, upon presenting the quarterly inflation report.

He said: "Inflation data is beginning to look better and we are hoping that at least during this summer period there will be substantial improvements".

The NBR governor added that the economy has exited the recession, and processing industry figures are nearing pre-crisis levels, similar to the regional trends.

Starting with the months of May and June we have had "a very strong correction" of volatile prices, and the persistence of the demand deficit helps lower inflation, he claims.

Mugur Isărescu said: "Consumption is still lagging. (...) The volume of consumer loans of the population remains low, which means that they are focusing on repaying their loans and second of all, that they are reluctant to borrow again".

As for the exchange rate, he said that volatility has increased since the beginning of the year, but it is still lower than that of the Polish zloty or of the Hungarian forint.

The NBR governor said: "The increase in volatility seems to be pretty strongly connected to the risk premium. We have seen a slight increase as worries of a crisis in a Eurozone have increased. Over these past few days we are seeing an extenuation".

He said that the possible reasons why the inflation target has deviated from the projected trajectory remain the evolution of the economy in the Eurozone and the sovereign debt crisis. Furthermore, others risks could come from the prices of commodities, (particularly oil) and foodstuffs on the international markets, as well as the from the Euro/dollar exchange rate.

The governor of the NBR said: "We are seeing slightly higher outside pressure, from imported inflation. We are being vigilant and we are carefully reviewing the external impact".

Mugur Isărescu said that the change in inflation may also be caused by volatile prices: "If volatile prices will continue to fall, the numbers will improve".

Other causes that could cause an upward deviation from the inflation prognosis, are the elimination of the subsidies for thermal energy and the liberalization of natural gas and of electric energy.

• Isărescu: A good harvest could add a few billion Euros to the GDP

If the harvest will be a good one, then the increase in the GDP will exceed the authorities" estimates by 1.5%, the governor of the NBR.

Mugur Isărescu said: "Personally, as a veteran, I can say that if the harvest is good, the economic growth will be higher. A good harvest means an increase of 1 billion Euros, almost 1% of the GDP".

• Isărescu: Government members need to be cautious, when speaking about raising the wages of employees in the public sector

Speeches about raising the salaries of public sector workers must take into consideration the fact that they only represent 25% of the total workforce, and it is the rest of the employees in the economy that provide the salaries of public sector workers, said Mugur Isărescu.

He said: "The discussion about the wages of public sector workers, just like any talks about salaries, doesn"t concern the right issue. Public sector employees are only a quarter of the total workforce. There are roughly 3 million employees, and they are the ones that actually pay the wages of public sector workers. (...) I"d be more careful when discussing this topic".

The governor of the Central Bank reminded that the wage increases in the economy have been spearheaded by the increases in the public sector. In his opinion, the members of the government should be more careful and not make any decisions that it would need to go back on.

Mugur Isărescu said: "The numbers need to be run a few times and a decision needs to be made afterwards. From what I understand this is the road that the government is going for. They want to make sure that the spending cuts aren"t accidental and that they will continue in the future as well. (...) After making a concession and raising wages, tacking back what you"ve given amounts to political suicide".

Last week, Jeffrey Franks, the head of the IMF mission in Romania, said that there is room for a modest increase in wages, but the decision on that matter depends on the government.