BNR’s Isarescu: Annual inflation rate, still in negative territory, but longer than expected

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A decrease of negative inflation is expected in the coming months, but to a lesser extent than in previous National Bank of Romania (BNR) forecasts, Governor Mugur Isarescu, commented after the financial institution he leads decided on Thursday, June 30, to keep unchanged the key interest rate at 1.75 percent.

According to him, following the cut in the standard VAT rate from 24 percent to 20 percent and the drop in global food and energy prices, the annual inflation rate moved in line with expectations, declining to -3.5 percent in May 2016 from -0.93 percent at end-2015.

The average annual CPI inflation rate stood at -2.1 percent in May 2016, while the average annual inflation rate based on the Harmonised Index of Consumer Prices, which is relevant for assessing convergence with the European Union, came in at -1.7 percent,a press release informs.

Isarescu noted that the external environment is marked by persistently low inflation, as well as by the escalating uncertainty about global economic growth, the UK’s status in relation to the European Union, and about the monetary policy stances of the world’s major central banks, given the higher volatility on international financial markets.

On the domestic front, risks stem from the fiscal and income policy stance, as well as from the adverse effects generated by legislative changes in the financial and banking areas.

The prudent monetary policy stance and the adequate dosage of the monetary policy instruments, along with the precautionary measures in the area of prudential supervision of the banking sector, are likely to strengthen the Romanian economy’s capacity to withstand shocks. However, the consolidation of the economic picture calls for a balanced macroeconomic policy mix and for progress in structural reforms.

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