Romania c-bank sees return to inflation in Q1, warns of negative effect of social unrest

Romania c-bank sees return to inflation in Q1, warns of negative effect of social unrest Mugur Isarescu, BNR governor Author (BNR) License: all rights reserved.

BUCHAREST (Romania), February 7 (SeeNews) - Romania's central bank, BNR, said on Tuesday it expects annual inflation in the country to return to positive territory in the first quarter and warned that political and social unrest are endangering financial stability.

BNR, which will release its 2017 inflation forecast on February 9, gave a heads-up on the coming report in a press release.

"The baseline scenario of the projection reconfirms the outlook for the annual inflation rate to revert to positive territory in the first quarter of 2017, amid the fading out of the impact of the standard VAT rate cut to 20%. The annual inflation rate is, however, projected to run at lower levels and its subsequent rise is relatively slower, due mainly to new disinflationary supply-side shocks that emerged from November 2016 to February 2017," BNR said.

In its latest inflation report issued in November, BNR kept its 2016 inflation forecast unchanged at minus 0.4% and raised its projection for 2017 to 2.1%, while leaving monetary policy options open. Romania's annual consumer price deflation decelerated to 0.5% in December, from 0.7% in November.

BNR's governor Mugur Isarescu warned that the current political and social unrest in Romania can't be good for the country's financial and monetary stability.

"The economy moves on, but we must not test its limits," Isarescu said in a statement on Tuesday.

On Sunday, the government of left-wing Social Democrat Party (PSD) and centre-right Liberal-Democrat Alliance (ALDE) revoked an emergency decree adopted several days earlier that would have weakened Romania's fight against corruption and helped politicians avoid criminal prosecution on graft charges.

Despite the revoking of the decree, 500,000 people rallied in Bucharest and other cities on Sunday to demand the government's resignation over its backtracking on Romania's fight against corruption.

BNR maintained on Tuesday its monetary policy rate at record low 1.75%. The central bank last changed the key rate in May 2015, when it cut it by 25 basis points.

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