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September 29, 2022

BNR cuts 2013 inflation forecast from 3.5 pc to 3.2 pc

According to Central Bank governor Mugur Isarescu, the downward trend is driven by fuels and volatile products like tobacco and alcohol.

The National Bank of Romania (BNR) announced that it lowered the inflation forecast for this year from 3.5 pc to 3.2 pc, slightly under the top limit of the interval targeted for this year, of 2.5 pc plus/minus one percent point.

“We have relatively good news. We hope the declining trend of inflation will be even stronger. The end of the year will come with an inflation of 3.2 pc, compared to the 3.5 pc we had predicted earlier,” the governor of the Central Bank, Mugur Isarescu said on the occasion of presenting the Report on inflation. “We took into consideration improvements in two big categories of products: for fuels, compared to 0.4 pc, we only have 0.1 pc, and for volatiles, where we will have a negative contribution. A slight increasing contribution for tobacco and alcoholic drinks, where calculations regarding the impact of excise duties were made once again,” Isarescu added.

For the end of 2014, the BNR forecast was revised upwards by 0.1 pc, to 3.3 pc.Referring to the inflation in the first quarter of this year, Isarescu said that it remains outside the interval targeted after the two external shocks which sent inflation off the interval.“After the second shock in the last quarter of last year, mainly determined by draught and political evolutions, followed by the increase of excise duties and administered prices in January, we notice the start of a downward trend which we expect to be stronger in February-May this year.

The diminishing of prices was driven by the nominal appreciation of the RON against the EUR and USD, the persistence of the demand deficit, the improvement of inflationist anticipations, especially after February, as well as the presence of favorable base effects associated to the LFO sub-group (vegetables-fruits-eggs) and the sub-group of fuels,” the BNR governor explained.

For the second quarter (end of interval), BNR projected in the report of February 2013 an inflation of 5.9 pc, with a variation margin of 1.1 pc, while for Q3 an inflation of 3.5 pc with an uncertainty interval of +/- 1.4 pc. In the last quarter of this year the margin of uncertainty stood at 1.7 pc, for an expected inflation of 3.5 pc. Moreover, for the first quarter of next year the projection was 2.7 pc, with a variation interval 1.8 pc, for Q2 2.8 pc (+/-1.9 pc), for Q3 3.1 pc (+/-2 pc) and for Q4 2014 an inflation of 3.2 pc (+/-2.1 pc).

A signal for the banks

BNR governor Mugur Isarescu also said that reducing the interval of Central Bank incentives should be a signal for banks not to lower their interests to deposits, while accepting smaller interests for loans, because financing demand cannot appear with interests of 15 pc a year. “We give banks a signal that they can begin the reduction cycle. This is how they used to start. They looked to the budget and said: BNR has lowered the reference rate, we will lower the interests on deposits. The interest rate of the present can be assimilated with the minimum interest rate. We no longer give 1.25 pc, we started giving 2.25 pc. The signal is clear, and this is fact, not talk. (…) We demand banks to refrain from lowering interests on deposits,” Isarescu said.

He gave up supporting banks also with regard to loans, saying that he no longer believes in the argument of a lack of demand in the market. “There is no crediting demand (banks say). But, if you have an interest of 15 pc with a diminishing inflation, who will take the loans? Commercial banks must not find a reason not to give loans,” Isarescu mentioned. “The population became more cautious about loans and many even want to get rid of debts,” the Central Bank governor added.

A 5-6 pc interval of the exchange rate is tolerable

The Central Bank also keeps under scrutiny the exchange rate variations up to 5 pc, but considers as tolerable a variation interval of 5-6 pc, the BNR governor said, admitting that the main concern with regard to the evolution of the currency is the intention not to discourage exports. Isarescu mentioned that, regardless of the evolutions of capital flows, BNR is extra careful not to hit the performance of exports, especially as it is unclear whether the current account surplus registered in the first two months represents a long-lasting phenomenon.

The Central Bank official believes there are conditions for appreciation precisely in the surplus registered by the current account of the balance of payments.





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