Romania's National Bank (BNR), in its March 15 board meeting, maintained the refinancing rate at 1.25% and approved the March 2021 Inflation Report, which incorporates the latest available data and information.

The meeting took place amid a visible rise in the headline inflation well above the previously-expected level, to 3.16% in February, under the transitory impact of the liberalization of the electricity market for household consumers and following the rise in fuel prices driven by higher oil prices.

Against rising headline inflation, the annual adjusted CORE2 inflation rate continued to decrease slowly over this period, falling to 3.1% in January and staying at this level in February, from 3.3% in December 2020, BNR stressed.

BNR's new scenario shows a change in the inflation outlook versus the previous projection, as the updated path of the forecasted annual inflation rate is revised significantly upwards in the short term and to a smaller extent over the second part of the projection horizon.

Specifically, the annual inflation rate is anticipated to pick up gradually during 2021 until near the upper bound of the 2.5%+/-1pp target band, under the impact of supply-side shocks, and – after a sizeable downward correction at the beginning of next year – to climb again and remain slightly above the midpoint of the target, amid the earlier reopening of the positive output gap and its subsequent slow widening.

However, high uncertainties and risks to the new outlook stem from the evolution of the pandemic and the associated restrictive measures – amid the spread of the third pandemic wave, including domestically–and from the dynamics of vaccination worldwide, but especially across the EU.

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andrei@romania-insider.com