Romania's central bank cuts short-term inflation forecast

Romania's annual inflation rate is expected to fall to 2.1% at the end of this year, a significant 0.6 percentage point downward revision compared with the previous forecast, Romania's National Bank (BNR) says in its latest quarterly inflation report.

The CPI inflation already dropped to 2.2% year-on-year in October.

The forecast assumes that the domestic epidemic situation is kept under control by applying quasi-generalized restrictions nationwide, resulting in the GDP stagnating in Q4 compared to Q3. Notably, BNR implies that it expected a weaker recovery in Q3.

"Specifically, the average annual GDP growth in 2020 is foreseen to post a significant negative value, albeit smaller than the forecast in the previous Inflation Report," the central bank's report reads.

The year-end inflation revision is explained by more significant disinflationary pressures having materialized since the previous quarterly forecast in August, induced mostly by exogenous components of the consumer basket, namely volatile food prices and fuel prices.

At the same time, under the impulse of the aggregate demand deficit in the economy and the gradual weakening of labor market resilience, sharper corrections will be reflected in the dynamics of the annual core inflation rate as well, which is seen reaching 2% at the projection horizon (2022, Q3).

For the end of next year, the current baseline scenario reconfirms the previously projected value for the annual CPI inflation rate (2.5%), whereas the annual core inflation rate forecast was revised slightly downwards (by 0.1 percentage points to 2.1%).

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