June 30 (SeeNews) - Romania's central bank, BNR, sees annual inflation remaining in negative territory longer than previously expected and is ready to use all tools necessary to tackle with Brexit effects.
"We see a softening of deflation in the coming months, but to a lesser extent than in previous forecasts. Such a path will influence monetary policy decisions of the central bank. The dominant situation is uncertainty, not only in Romania, but generally in Europe and worldwide, and this was enhanced by the vote in the UK," governor Mugur Isarescu said in a speech published on the BNR website on Thursday.
In these conditions, BNR's approach will become more practical, Isarescu added.
"We see how things develop and respond with the arsenal in hand," he said.
The prospects for inflation to gradually return into positive territory are surrounded by both domestic and external risks, amid heightened uncertainty, the bank said.
In May, BNR slashed its inflation forecast for both this and next year, citing lower regulated energy prices and a recently adopted mortgage walk away law that will restrict lending and thus affect economic growth.
The bank was expecting an average annual inflation of 0.6% this year, speeding to 2.7% next year, down from previous estimates of 1.4% for 2016 and 3.4% for 2017. It anticipated deflation, which deepened to a one-year high of 3.5% in May from 3.3% in April, to persist until July.
Romania's annual inflation rate turned negative last June under the impact of broadening the scope of the 9% reduced VAT rate to all food items, non-alcoholic beverages and food service activities.
BNR maintained on Thursday its monetary policy rate at a record low of 1.75%. The bank last changed its monetary policy rate in May 2015, when it cut it by 25 basis points.