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The annual inflation rate in Romania remains in negative territory for longer than previously projected by the National Bank of Romania (BNR), but with a diminished negative territory as the effects of the Value-Added Tax cuts for foods in June 2015 having worn out because of uncertainties and falling import prices, BNR Governor Mugur Isarescu said Thursday.
"We are expecting the inflation's negative territory to diminish in the months to come, but to a smaller extent than previously forecast. Such a trajectory will influence the monetary policy decisions of the National Bank. Uncertainty is predominant in Europe and the world overall, increased by the UK's vote [to leave the European Union]. The novelty here is our approach becoming more practical. We are paying attention to how things develop and act accordingly with all we have at hand," Isarescu explained.
A detailed press statement presented by Isarescu and released after a monetary policy meeting of BNR on Thursday says "short-term forecasts point to the annual inflation rate staying in negative territory, albeit at considerably less negative readings due to the fading out of the direct impact of broadening, in June 2015, the scope of the reduced VAT rate to all food items."
The prospects for the inflation rate to gradually return into positive territory are surrounded by both domestic and external risks, amid heightened uncertainty, the statement says. The external environment is marked by persistently low inflation, as well as by the escalating uncertainty about global economic growth, the UK's status in relation to the European Union, and about the monetary policy stances of the world's major central banks, given the higher volatility on international financial markets. "On the domestic front, risks stem from the fiscal and income policy stance, as well as from the adverse effects generated by legislative changes in the financial and banking areas," the statement says.
