Central Bank increases inflation forecast to 1.4 pct in 2016

Newsroom 09/02/2016 | 14:03

The National Bank of Romania (BNR) has released its quarterly inflation report, revising the prognosis for this year to 1.4 percent and projecting it at 3.4 percent in 2017, according to Mediafax.

The central bank had forecast the inflation at 1.1 percent for 2016 in November last year, a 0.4 percentage points rise. The bank’s governor, Mugur Isarescu, had stated at the time that inflation will stay within a negative interval until May 2016, followed by positive results, but still below BNR’s target of 2.5 percent, give or take one point.

“Without the impact of the round I of the VAT rate cuts, inflation would reach 3 percent in 2016 and 3.7 percent in 2017. The projected inflation trajectory is substantially affected by the fiscal measures on successive reduction of indirect taxes, positioning itself with negative values until May 2016 and later returning to positive values and re-entering within the target range in January 2017,” Isarescu said during the conference presenting the quarterly inflation report.

Inflation at the end of last year stood at -0.9 percent, up from -1.1 percent in November and the minimum of -1.87 percent registered in August. In the absence of the impact of reduced VAT rates (in June), inflation would have been around 2 percent in December, the central bank’s target range.

“We have almost an explosion of retail consumption, especially in food, which is understandable after the reduced VAT rate; the non-food products have registered increases also and we expect that by reducing the VAT on non-food products we will see increases in consumption here also,” the BNR governor pointed out.

Natalia Martian

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