Facebook Blogging

Edward Hugh has a lively and enjoyable Facebook community where he publishes frequent breaking news economics links and short updates. If you would like to receive these updates on a regular basis and join the debate please invite Edward as a friend by clicking the Facebook link at the top of the right sidebar.

Friday, March 7, 2008

Romanian Wage Growth January 2008

Romania's leu continued its rise against the euro for the fourth consecutive day yesterday after a report from the statistics depaterment showed wages growth accelerated again in January, increasing speculation that the central bank will raise what is already the European Union's highest interest rate.

Net wage growth accelerated to an annual 30.7 percent in January, from 15.2 percent in December, bringing the average monthly wage to 1,200 lei ($496).

Romania's central bank has highlighted wage growth is a main driver of inflation and the main threat to this year's inflation forecast. Romania's key lending rate is currently 9 percent.

As I said above,the leu advance continued yesterday, and it rose by as much as 1 percent to 3.6745 per euro, its highest level in a week, although it had fallen back to 3.6982 by 12:16 p.m. in Bucharest, still up from 3.7123 late Wednesday.

Obviously this whole situation is very "perverse" since the leu is being driven up by expectations of extra yield given that the bank may well have to raise rates. The problem is that the excess inflation means that in the longer term the leu is likely to depreciate rather than appreciate - perhpas towards the 3.80-3.90 range - and that under these circumstances, and when the domestic demand driven overheating has died down the bank may well (like its Hungarian equivalent) be forced to maintain higher than desireable interst rates simply to protect the currency and attract the funds needed to cover the current account deficit, which, given its magnitude, one would surely not wish to see unwind overnight.

In another sign of the continuing overheating, INSSE also reported yesterday that construction activity increased in January by 29.5% over January 2007, up from the 28.2% increase in December.

No comments: