BNR revises inflation forecast down to 1.7pc for this year

The National Bank of Romania (BNR) has revised downwards the inflation forecast for this year by 0.4% to 1.7%, central bank Governor Mugur Isarescu announced on Thursday during a press conference focused on inflation.

For the end of 2018 BNR envisages an inflation rate of 3.4%, by 0.2% above the previous forecast with the target of 2.5% +/- one percentage point.

The governor said the annual inflation rate remained relatively stable in Q4 2016. “The raw materials prices register increased. The trend is continuing even now, in a less pronounced manner,” Isarescu said. Fuel prices have reached positive territory, request for loans in RON has remained important, but the ‘first house’ programme is irregular.

During a press conference on Tuesday, central bank governor Mugur Isarescu said inflation could go up to positive territory in the first quarter this year.

“The basic scenario reconfirms the prospect for annual inflation rate to go up on positive territory in the first quarter of 2017. The subsequent development is to be slower, mainly due to the disinflation shock during November 2016-February 2017, resulting from the tariff cuts of compulsory car insurance, non-fiscal taxes, VAT cut to 19% and from the over-excise tax elimination since January 1, 2017,” Isarescu said.

The BNR Governor said the risks and uncertainties for inflation come from the domestic and external environment. “In the domestic field risks arise from the tax policy and revenues to the state budget, the future evolution of administrative prices, from the domestic climate. In the external field risks are related to the eurozone growth, the electoral calendar in 2017 and from the negotiations regarding Brexit, the monetary policies of the main central banks worldwide, the European banking system,” Isarescu said.

At the end of March the forecasted inflation rate is 0.2%, +/- 0.5%, the central bank informs, adding that for end June the expected level is of 0.6%, +/-0.9%, whereas in Q3 the level is expected to reach 1.3% (+/-1.2%).

Domestic producers gradually lose the market due to erosion of competitiveness

The domestic producers gradually lose the domestic market due to the erosion of competitiveness by price, Isarescu also said.

“There is a clear trend of erosion of demand, but mainly an erosion of competitiveness by price. The domestic producers lose the market gradually. (…) There’s no room for the national currency appreciation,” he said.

The BNR Governor added that investments are modest. The economic growth is solid, after 20 consecutive months, however it is based on consumption. “BNR has repeatedly warned the main problem is disinvestment or the low capital index for Romanian companies,” Isarescu said.