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February 4, 2023
BUSINESS

BNR hikes inflation rate forecast to 5.1 pc this year

The fluctuations in the RON/EUR exchange rate and the fact that structural reforms are relatively behind schedule are risks that could hike the inflation rate, BNR Governor Mugur Isarescu stated. Likewise, he does not see economic growth in 2013 without absorbing European funds.The National Bank of Romania (BNR) hiked its inflation rate forecast for this year from 3.2 per cent to 5.1 per cent, the new level being more than one per cent over the upper limit of its target, and hiked its forecast for 2013 from 3 per cent to 3.5 per cent, BNR Governor Mugur Isarescu announced.  Mugur Isarescu considers that the drought, the RON’s depreciation, the adjustment of regulated prices and an upward trend in the international price of oil are factors that pushed the inflation rate above the BNR’s target. When presenting the quarterly report on the inflation rate the BNR Governor explained that the inflationary outburst seen in recent months is temporary because there is still a significant demand deficit that will influence next year’s economic growth too, which will stand below the potential GDP. “The GDP deviation, meaning the demand deficit, is a factor that eases the inflation and leads us to state that this outburst is temporary. As long as the demand deficit tends to grow it means that the mix of policies, including the monetary policy, is strong. (…) We have to be very careful when thinking about strengthening the monetary policy because we are registering a consistent demand deficit,” the BNG Governor added. Isarescu also stated that difficult decisions will have to be taken because of this demand deficit, an annual inflation rate of 5 per cent and an annual average of 4 per cent being anticipated until March-April 2013, a phenomenon that is the result of the fairly significant hike in consumer prices. “The fluctuations of the RON/EUR exchange rate will represent a risk for an upward revision of the inflation rate. The economy’s sensitivity in the face of energy prices is known, so that there is the risk of an upward revision of the inflation rate compared to the EUR/USD exchange rate. Backsliding could appear but the fiscal consolidation outlook is positive and the risk is significantly lessened by the commitments taken,” Isarescu explained. Prices have grown a lot and the BNR data shows that because of the demand deficit traders are no longer able to push the prices higher even if they want to. Another important thing the Governor underlined was the idea that Romania will not register economic growth next year unless the absorption of European funds is unblocked, European funds being the only accessible financing resources during this period, resources able to replace foreign and budget investments. “I’d dare to say that these European funds were and continue to be the backbone of Romania’s development. We are not really seeing foreign investments of a different nature, with the exception of the energy sector maybe,” Isarescu added, Mediafax informs. BNR estimates a 1.5 per cent deviation from potential GDP, and if the IMF forecast concerning the potential GDP (1 – 1.5 per cent on the short term) is taken into account then Romania risks having zero economic growth next year. “One can’t have economic growth without investments. In order to make investments you need capital, technology. We have neither,” Isarescu added. The Head of the Central Bank added that the strongly pro-cyclical fiscal policy seen prior to 2007-2008 remained pro-cyclical until at least this year, hinting that he does not expect essential changes from this point of view.

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