BNR: There are forecasts of inflation’s slight acceleration in the coming months

0

Get real time updates directly on you device, subscribe now.

The current short-term forecast reconfirmed the outlook for the annual inflation rate to pick up slightly in the following months, the minutes of the monetary policy meeting of the National Bank of Romania (BNR) Board on 5 April 2017, reveals.

“The forecast also reconfirmed the annual inflation rate remaining significantly below the lower bound of the variation band of the target in June 2017, at a level only marginally above the previously-projected one, reflecting the upward revision of the expected price dynamics for vegetables, fruit and eggs and the downward revision of the anticipated pace of increase of fuel prices,” the document reads.

It was remarked that the near-term outlook for inflation was compatible with the projected path of the annual inflation rate shown by the BNR’s latest medium-term forecast, published in the February 2017 Inflation Report.

Specifically, the annual inflation rate was seen returning inside the variation band of the target in 2017 Q4, ending the year at 1.7 percent, before climbing into the upper half of the band and nearing its upper bound in 2018, prompted by the fading out of the one-off impact of the cuts/removal of indirect taxes, excise duties, non-tax fees and charges, as well as by the stronger inflationary pressures from aggregate demand and unit wage costs,” central bank shows.

In their addresses, Board members first referred to recent inflation developments. It was noted that the annual inflation rate had returned to positive territory in January 2017 and advanced to 0.2 percent in February, exceeding marginally the projected level. Apart from the base effect associated with the standard VAT rate cut to 20 percent, this had reflected the impact of an early return of annual price dynamics for vegetables, fruit and eggs to positive readings, amid bad weather across Europe at the beginning of this year. Opposite, albeit weaker, effects had had the lowering of the standard VAT rate to 19 percent and the removal of the special excise duty on fuels as of 1 January 2017, as well as the scrapping of non-tax fees and charges one month later, which had affected administered price dynamics in particular.

Board members also referred to the faster-than-expected pick-up in economic growth in 2016 Q4, to 4.7 percent year on year, against 4.3 percent in the previous quarter, implying a likely wider-than-anticipated reopening of the positive output gap. According to them, the net exports had had the larger contribution to the acceleration of growth, while domestic demand had played a secondary part.

At the same time, Board members remarked the much larger contribution from the change in inventories to annual GDP dynamics, which had offset the drop in the contribution of private consumption and general government consumption, and the fall into negative territory of the contribution from gross fixed capital formation, owing primarily to the contraction in civil engineering works. Moreover, as regards GDP formation, it was noted that services and net taxes on product had been the determinants of the pick-up in economic growth, with the services sector thus strengthening its dominant contribution to annual GDP dynamics.

Turning to real monetary conditions, Board members took the view that they had remained accommodative in 2017 Q1, amid the rise in the leu exchange rate and annual inflation rate, concomitantly with the average remuneration of new time deposits remaining quasi-constant and the average lending rate on new business increasing somewhat January through February.

Some BNR Board members considered that, in the short term, Romania would witness high economic growth, inflation under control, low unemployment, and financial stability. Over the long term, prospects for convergence with the euro area remained plausible, assuming larger capital stock and infrastructure development. Over the medium term though, there was uncertainty surrounding fiscal risks in particular amid the widening deficit during above-potential growth years.

In light of the analyses, Board members judged it appropriate to leave the monetary policy stance unchanged, with a view to ensuring price stability over the medium term in a manner conducive to achieving sustainable economic growth.

 

- Advertisement -

Leave A Reply

Your email address will not be published.

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More