Update: BNR downgrades inflation forecast to 3.8%. Isarescu: Economy not on the verge, yet in a delicate condition


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The National Bank of Romania (BNR) has presented the new quarterly Inflation Report in a press conference today, 8 November, deciding to decrease the inflation forecast for the end of this year to 3.8%, while forecasting a 3.1% inflation for the end of next year.

BNR Governor Mugur Isarescu stated that Romania’s economy is neither into the abyss nor on the verge of collapse, yet it is in a delicate, though controllable condition.

The central bank governor also said that the upward trend of the consumption, which is the main engine of the economic growth, has remained on a high level, yet stable, but this is not a sustainable level and the demand will mitigate. Isarescu added this should happen through wise actions, to avoid the brutal, violent action of the market’s forces.

Isarescu also remarked the weakening foreign demand, which has eroded the industrial activity, more precisely the case of the automotive industry, reminding the connection about the declining Romanian exports with the negative evolution of the automotive industry in Germany in the past year.

On the other hand, BNR governor mentioned a boosting of investments, exemplifying the “double-digit increase” on the number of building permits.

Among the potential causes of the deviating inflation there are the trends of the foreign economies, the prices of the raw materials, the domestic fiscal policy, the tensions on the labour market. If you go touring the country, you’ll see there are regions where there are no more people to hire“, Isarescu warned, underlining “Romania’s problem is mainly fiscal”. “It’s very good the salaries had been increased, only there was a wrong pace of doing that”, he added.

The BNR governor said they will get along with the new Government to avoid “any discretionary fiscal policy”  and to see their plans regarding the salaries.

However, Isarescu assured the situation is controllable. “It’s slightly blue, but controllable. Let’s say, blue ciel”, he concluded.


In its meeting of 6 November 2019, the Board of the National Bank of Romania decided to keep the monetary policy rate at 2.50 percent per annum, to leave unchanged the deposit facility rate at 1.50 percent per annum and the lending facility rate at 3.50 percent per annum and to maintain the existing levels of minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.

n September 2019, the annual CPI inflation rate went down to 3.5 percent (from 3.9 percent in August), thus returning to the upper bound of the variation band of the target. The evolution owed mainly to the pronounced slowdown in the annual growth rate of volatile food prices and that of fuel prices. Compared to end-Q2, when it had stood at 3.8 percent, the annual inflation rate posted a slightly larger-than-expected decrease. The decline was attributed to the deceleration in the dynamics of vegetable prices, administered prices and fuel prices.

The annual adjusted CORE2 inflation rate (which excludes from the CPI inflation administered prices, volatile prices, and tobacco product and alcoholic beverage prices) continued to increase in Q3, albeit at a slower-than-anticipated pace, going up from 3.3 percent in June to 3.4 percent in September. The advance reflected opposite influences stemming from the rise in some international agri-food prices and from the cut in the prices of telecommunication services, overlapping significant demand-pull and wage cost-push inflationary pressures.

The average annual CPI inflation rate continued to decline to 3.8 percent in September from 3.9 percent in August 2019; calculated based on the Harmonised Index of Consumer Prices, the average annual inflation rate went down to 3.9 percent from 4.0 percent July through August 2019.

The new statistical data on economic growth in 2019 Q2 confirm the slight deceleration in real GDP to 4.4 percent from 5 percent in the previous quarter (annual changes). According to the revised data, the contribution of household consumption was further prevalent, followed by that of gross fixed capital formation. Compared to the previous version, net exports had a smaller negative contribution to GDP dynamics, in the context of a sharper narrowing of the negative differential between the growth rates of exports and imports of goods and services. The evolution was also visible in the moderation of the annual pace of increase of the negative balance on trade. The annual dynamics of the current account deficit remained, however, at the previous quarter’s level amid the marked worsening of the primary and secondary income balances.

The latest statistical data point to mixed developments for consumption, investment and production July through August: a faster rise in retail sales concurrently with a slower annual growth rate of services to households than in Q2, a step-up in the construction activity, as well as a larger contraction in industrial output, particularly on account of manufacturing.

The growth rate of credit to the private sector moderated slightly in September, to 7.7 percent, from 8 percent in August. During Q3 overall, its average dynamics picked up, however, to 7.9 percent versus 7.5 percent in the previous quarter. The share of domestic currency loans in total private sector credit widened further, reaching 66.6 percent in September, against 65.4 percent in September 2018 (from a low of 35.6 percent in May 2012).

In today’s meeting, the NBR Board examined and approved the November 2019 Inflation Report, which incorporates the most recent data and information available. The new forecast points to the outlook for the annual inflation rate to end this year slightly above the variation band of the target, before returning and staying in the upper half of the band until the end of the forecast horizon, on a trajectory below that envisaged previously.

Heightened uncertainties and risks surrounding the inflation outlook stem from the future fiscal and income policy stance, especially amid the 2019-2020 election calendar, while the level and the trend of the current account deficit remain a matter of concern. Rising uncertainties are also generated by the increasingly obvious weakening of the euro area and global economies, as well as by the growing risks to their outlook, in the context of the trade war and Brexit. Particularly relevant are the ECB’s and the Fed’s decisions on monetary policy easing, as well as the stance of central banks in the region.


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