Ro­ma­nia set for first year of in­fla­tion since com­mu­nism

The Pak Banker - - BUSINESS -

Ro­ma­nia's cen­tral bank cut its year-end in­fla­tion forecast to less than zero for the first time since com­mu­nism fell in 1989 as tax re­duc­tions damp price growth.

In­fla­tion will be mi­nus 0.3 per­cent in 2015, com­pared with a pre­vi­ous pro­jec­tion for a 0.2 per­cent ad­vance, Gover­nor Mugur Isarescu said Thurs­day in Bucharest. He forecast a 0.7 per­cent in­crease next year. "The bal­ance of risks to in­fla­tion is skewed up­ward," Isarescu said. "Don't think we don't have in­fla­tion pres­sures, we do but they're hid­den be­hind the ef­fects of the tax cuts." In­fla­tion is be­ing dragged down by muted price growth in the euro area and pre-elec­tion re­duc­tions in the value-added tax by Prime Min­is­ter Vic­tor Ponta's gov­ern­ment. The cen­tral bank is fight­ing what it calls "tem­po­rary de­fla­tion" that set in two months ago. Pol­icy mak­ers have halted a rate-cut­ting cy­cle that brought bor­row­ing costs to a record 1.75 per­cent. With eco­nomic growth eclips­ing the rest of the Euro­pean Union in the first quar­ter, reach­ing 4.3 per­cent from a year ear­lier, the leu has gained. It's ad­vanced 1.5 per­cent against the euro in 2015 and was 0.1 per­cent weaker at 4.4123 at 12:32 p.m. in Bucharest, data com­piled by Bloomberg showed. In­fla­tion will stay neg­a­tive for the next three quar­ters and won't re­turn to the cen­tral bank's tar­get band of 1.5 per­cent to 3.5 per­cent un­til the start of 2017, Isarescu said Aug. 4. If all the planned tax cuts go into force along with a boost to state wages, pol­icy mak­ers may re­sort to rate in­creases to pre­vent the econ­omy from over­heat­ing, Deputy Gover­nor Bog­dan Ol­teanu said this week.

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.