Targeting inflation rate, painful problem for BNR +Central Bank revises downward, by 0.8 pp, inflation rate prognosis for this year, to 0.6 pc

National Bank of Romania (BNR) Governor personally presented the quarterly inflation rate report yesterday. In contrast to other similar occasions, Mugur Isarescu was less willing to resort to parables and appreciations with a more or less political tinge. Including in what concerns the debt discharge law that will come into force several days from now and which he could not help but disparage in the past.

Mugur Isarescu read off a prompter all inflation rate charts and the causes that determined this indicator to enter a somewhat dangerous slump. The BNR Governor emphasised that, compared to the February estimate, the inflation rate prognosis for this year has been revised downward by 0.8 percentage points to 0.6 percent. For 2017, BNR forecasts an inflation rate of 2.7 percent, also revised downward compared to February, back when the Central Bank was forecasting an inflation rate of 3.4 percent at the end of next year.

It has to pointed out that in the 10 years that have passed since BNR started drafting reports on this topic, the BNR Board’s assessments have never been in line with reality.

“The bulk of the inflation stems from adjusted CORE 2 (core inflation, not including products whose prices are regulated, the prices of volatile products, alcohol and tobacco – editor’s note). We can see that the demand surplus that will take hold starting this year will have its say and will define our future behaviour. In an uncertain environment, this is the BNR Board’s message, you have to heighten your vigilance and prepare all of your instruments in order to maintain not only price stability but also financial stability,” the BNR Governor explained.

According to the report, without the first round impact of the VAT reduction, the inflation rate would reach 1.9 percent in 2016 and 2.9 percent in 2017. The lowering of the standard VAT from 24 to 20 percent on 1 January 2016 was reflected in prices in proportion of over 70 percent, however that percentage is smaller than the one registered in the case of the reduction of VAT on bread and pastry products, when the percentage stood at 93 percent, or in the case of the reduction of VAT on foodstuffs in general, when 80 percent was reflected in prices, the BNR Governor stated on Tuesday.

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