Ro­ma­nian cen­tral bank raises in­fla­tion out­look

The Pak Banker - - COMPANIES/BOSS -

Ro­ma­nia's cen­tral bank raised its 2016 in­fla­tion fore­cast with the first bout of con­sumer price de­clines in more than 25 years set to re­verse amid a surge in de­mand. Prices will grow 1.4 per­cent in 2016, com­pared with a pre­vi­ous pro­jec­tion for a 1.1 per­cent ad­vance, Gov­er­nor Mugur Isarescu said Tues­day in Bucharest. In­fla­tion will quicken to 3.4 per­cent next year, close to the up­per end of the cen­tral bank's 1.5 per­cent to 3.5 per­cent tar­get band.

Mon­e­tary-pol­icy mak­ers in the Euro­pean Union's se­cond-poor­est coun­try see the first de­fla­tion since com­mu­nism abat­ing mid-year as the econ­omy ex­pands at one of the con­ti­nent's fastest clips. The cen­tral bank, which calls the falls in prices the tem­po­rary re­sult of tax cuts, held bor­row­ing costs un­changed at a record-low 1.75 per­cent last week.

"In Ro­ma­nia, we still have more prices that are on the rise than de­clin­ing," Isarescu told a news con­fer­ence, say­ing the econ­omy may ex­pe­ri­ence ex­cess de­mand by the sum­mer. "The only in­di­ca­tor that ex­erts down­ward pres­sure on in­fla­tion is ex­pec­ta­tions. All oth­ers point to­ward price in­creases." Con­sumer prices fell 0.9 per­cent from a year ear­lier in De­cem­ber, drop­ping for a sev­enth month. Jan­uary price data will be re­leased Feb. 15. The cen­tral bank is ap­proach­ing the mo­ment when it should start act­ing to pre­vent a 2017 breach of its in­fla­tion band, ac­cord­ing to Isarescu, though he said de­lays are pos­si­ble be­cause of volatile cap­i­tal flows.

Ro­ma­nia's leu has so far weath­ered the swings en­dured by other de­vel­op­ing na­tions. It's gained 0.8 per­cent against the euro this year, the se­cond-best per­for­mance among 24 emerg­ing-mar­ket cur­ren­cies tracked by Bloomberg. It was 0.2 per­cent weaker Tues­day.

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