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October 22, 2021

BNR maintains 2016 inflation prognosis at minus 0.4pct; for 2017, prognosis revised upwards, to 2.1pct

The National Bank of Romania (BNR) maintains its inflation estimation for this year at minus 0.4 percent, however it revises upwards the prognosis for next year, to 2.1 percent, up from the 2 percent estimated in August, according to the data of the Quarterly Report on Inflation, presented by National Bank of Romania (BNR) Governor Mugur Isarescu on Thursday.

“For next year, we have a minor upwards revision, by 0.1 percentage points, to 2.1 percent based on the adjusted CORE 2 evolution,” Isarescu explained.

According to him, without the impact of the first round of the VAT quota reduction, inflation would have stood at 1 percent this year and 2.4 percent next year.

Without taking into account the impact of eliminating the additional excise tax on fuel since 1 January 2017, inflation would reach 2.7 percent in 2017, the BNR Governor also added.

“We are coming up against the lack of labour force. Demand is growing, production is showing signs of growth, but it is blocked by this obstacle”

Domestic demand has been stimulated too much. This led to the growth of imports because domestic production did not have time to cover the demand. Now “we are also coming up against the lack of labour force,” BNR Governor Mugur Isarescu stated on Thursday.

“Now, we are coming up against something more difficult to anticipate previously: we do not really have labour force. Demand is growing, production is showing signs of growth, but it is blocked by this obstacle,” Mugur Isarescu said at the conference in which the inflation report was presented.

As inflationary pressures, the BNR Governor pointed to external factors – with uncertainty on financial markets caused by the results of the U.S. elections too, but also by the decisions taken by oil exporting countries – and to internal factors, the most important of which was the growth of consumption.

“External factors rather push the inflation rate downward,” Mugu Isarescu added, pointing out on the other hand that internal factors are pushing the inflation rate upward, against the backdrop of the growth of demand.


“For the time being no impact on monetary policy looms following the result of U.S. elections”


Isarescu considers that the result of the U.S. elections rather shows the end of a form of globalisation, and an impact on the monetary policy does not loom for the time being.

“For the time being I do not see such a change (in monetary policy – editor’s note). I believe the significance of the U.S. elections has more to do with ending a form of globalisation as understood in the last 20-25 years, at least on the part of two countries – United Kingdom and the U.S. On the monetary policy side, because of this, I don’t see what impact the elections will have,” Isarescu explained on Thursday at a conference in which the Quarterly Inflation Report was presented.

Nevertheless, in case the U.S. opts for “a somewhat more rapid stimulus (in the sense of hiking the interest rate – editor’s note), even though the Fed has announced it will look with very great care on unemployment and economic growth data, this could have an impact on Europe too because the interest ratio is changing on the main international markets,” the BNR Governor emphasised.

In these conditions, Mugur Isarescu considers that “Romania, as well as Europe, is in a situation of great complexity, dominated by big uncertainties.”

“In this context, BNR’s stance is to follow carefully, to monitor what is going on mainly in our region, in Europe and on international markets and to act appropriately, on one hand by maintaining enhanced vigilance (when you have many government bonds in the hands of non-residents things can happen over very short periods of time) and by keeping all monetary policy options open. At this moment, we are not ruling out any instrument that could be used at the right time and in the right dosage,” the BNR Governor added.

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