Romanian central bank raises inflation outlook

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.