Romania Bank Says Inflation Falling

BUCHAREST, Romania (AP) -- Romania's central bank governor said Monday that the economy was growing strongly and he expected inflation to fall in the third quarter.
Governor Mugur Isarescu said the bank expects inflation to drop to 7.5 percent for 2005 and 5 percent for 2006, down from 9.3 percent in 2004. He said inflation was higher than expected in the second quarter due to increases in energy prices and taxes, but that inflation was expected to decrease in the last three months of the year.

"Chances are that we will achieve our inflation targets for this year and next year," Isarescu said. He added that controlling inflation was a top priority for the bank.
Isarescu warned, however, that the inflation target was threatened by a rise in foreign investment.

"We are flooded by foreign capital," Isarescu said, adding that the bank was happy about incoming direct foreign investment but wanted to discourage excessive short-term capital flow into Romania. A possible rise in the value-added tax in 2006, from 19 percent to 22 percent, would also threaten the inflation targets, as would measures stimulating demand.
The governor added that the central bank would continue to apply limited controls on the flotation of the national currency, the leu, to ensure that its levels against foreign currencies remain at sustainable levels.

Isarescu said the economy was improving, with a small public debt and a reduction in arrears that have plagued the Romanian economy for more than a decade.

Romania's economy is expected to grow at about 6 percent for the next few years.

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