Romania’s National Bank (BNR) marginally reduced its inflation forecast for 2020 from 3.1% to 3% and expects consumer prices to advance by another 3.2% in 2021.
At the end of 2019, the annual inflation rate in Romania hit 3.8%.
“The annual consumer price inflation rate is projected to re-enter the target band [2.5% +/-1pp] starting with Q1 and reach 2.8% at the end of March, amid the phasing out of the effects of supply shocks in 2019. Later, it will follow an upward trajectory, but will remain within the target band,” reads the central bank’s Quarterly Inflation Forecast.
BNR governor Mugur Isarescu stressed once again that the twin deficits remain the central bank’s main concern, but also argued against the option of sudden exchange rate correction as a solution for reducing the external deficit.
“Not any fiscal slippage can be addressed [corrected] by the central bank,” governor Isarescu said. “Sudden depreciation will only make things worse,” he added.
As regards the inflation, beside the stable 2.1% core inflation, which stands for the general rate of increase of the general consumer prices (not including the volatile, energy or administered prices), the main inflationary elements in 2020-2021 are going to be the administered prices [+0.4 percentage points in each year] and the prices of tobacco and alcoholic beverages [+0.5pp in 2020 and +0.4pp in 2021].
The balance of risks indicates inflationary internal elements (tight labour market, energy market liberalisation) and disinflationary external elements (weaker economic growth in Europe, trade tensions, slower global growth caused by problems in China and monetary policies in euro area and US).
The impact of the domestic fiscal and income policies remains uncertain, including because of the busy electoral calendar.
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Romania’s annual inflation could drop to 3% at the end of the first quarter of 2020, after reaching 4% in December,...