Thursday August 6, 12:13 PM
UPDATE 1-Romanian cbank cuts GDP, inflation forecasts
BUCHAREST, Aug 6 (Reuters) - The Romanian central bank forecast on Thursday an 8 percent GDP contraction in 2009, twice as sharp as its previous prediction, and trimmed inflation expectations for this year and next.
Unlike some of the export-driven economies in central and eastern Europe, Romania is experiencing few signs of possible improvement in economic performance as consumers slash their purchases which were the key driver of growth in recent years.
Central bank (CBSU.PK - news) governor Mugur Isarescu said demand for durable goods in Romania fell 'dramatically' in the second quarter.
'We have a clear reduction in domestic consumption and this is tempering price pressures,' he told a news conference held to present the bank's quarterly inflation report.
Earlier this week, the central bank shaved half a point off borrowing costs, bringing the key interest rate to 8.5 percent in a bid to lift the economy out of doldrums.
The bank's new forecast sees inflation at 4.3 percent in December, compared with a previous forecast of 4.4 percent, and falling further to 2.6 percent at the end of 2010.
Romania's deepening recession is at the heart of negotiations between Bucharest and the International Monetary Fund this week, with the government asking the Fund to raise its budget deficit target as part of its aid conditions.
The Fund has led a 20 billion euro aid package for Romania this year, in an effort to prevent a financing crisis in the economy stricken by the global credit squeeze.
Isarescu said a 'large' budget deficit was unavoidable this year, although he refrained from saying what spending levels would be appropriate. He said only that public debate was needed in Romania on the structure of public finance to ensure long-term economic stability.
Government officials have said they wanted to raise the deficit target to up to 7 percent of gross domestic product.
(Reporting by Luiza Ilie and Marius Zaharia; writing by Justyna Pawlak; editing by Mike Peacock) Keywords: ROMANIA CBANK/
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