Romania's central bank will hold back from any ``sharp and sudden'' reaction to accelerating inflation and a widening current account deficit.
``Don't expect us to react in an unprofessional way or to overreact or be disorderly or push on the brakes,'' Mugur Isarescu, 58, said in an interview in Bucharest yesterday. ``There's no reason. The situation is manageable.''
Isarescu, who has headed the central bank since 1990, after the fall of communism, said there was ``not a good probability'' that the year-end annual inflation rate will be below 5 percent, though it will probably peak in October.
`We expect some impact of the drought on food prices to remain in October,'' he said. The increase may turn around starting in November and ``we hope inflation at year's end will be close to the target. We aren't only looking at one month's data and then to go and shoot a fly with a cannon. We're looking for sustainability and continuity.''
Obviously this is just not the way to handle a tricky and extremely complex situation. The remarks do not convey the level of concern and getting down to business attitude that the markets are looking for - and are right to expect - at this point. Predictably the leu has again been under siege this morning. If the central bank governor conveys the idea that he isn't particularly bothered, then its do what you like time.
Also, and as is being repeatedly stressed here on this blog, by the IMF and by the world bank, the issues which are up on the table go way, way, beyond food prices. The relate to how you can continue to fund an unsustainable current account deficit, and what to do about a fertility and out-migration driven labour shortage. They need to be addressed, and quickly - at least by offering credible policy responses - or all of this is going to explode, and soon.
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