Uncertainties associated with inflation outlook are unusually high

The uncertainties associated with the inflation outlook are unusually high, given the unprecedented nature of such a national and global economic shock, as well as changes in consumer behavior, the National Bank of Romania (BNR) shows in a press release on Friday.

"The uncertainties associated with the inflation outlook are unusually high, given the unprecedented nature of such an economic shock nationally and globally, involving sudden closures of companies and sectors, but also changes in consumer behavior. The speed of economic recovery following the gradual elimination of the restrictive measures and the effectiveness of actions and programs to support companies and the population are also major sources of uncertainty. Domestically, significant uncertainties are associated with the conduct of fiscal and revenue policy, but also with the functioning of the monetary policy transmission mechanism in the context of legislative bills targeting the banking system. Increased uncertainties and risks also arise from the contraction of the euro area economy and the global economy, as well as developments in international financial markets, in the context of the crisis caused by the coronavirus pandemic," reads the press release on the Decisions of the BNR Board of Directors on monetary policy issues.

According to the quoted source, in Friday's meeting, the BNR Board of Directors analyzed and approved the Inflation Report, May 2020 edition, a document that incorporates the latest available data and information.

"The current macroeconomic forecasts have been made in conditions of extremely high uncertainty and maximum difficulties, given the unknown variables of the evolution and implications of the pandemic and the associated measures. The new scenario shows a change in the expected trajectory of the annual inflation rate. Thus, after a moderate decline in the second quarter, the annual inflation rate is expected to rise again in the upper half of the target range in the second half of the current year, before repositioning and maintaining itself around the central point of the target until the end of the projection horizon, against the background of the manifestation of the disinflationary pressures of the aggregate demand deficit," mentions the report.