May 12 (SeeNews) - Romania's central bank said on Thursday it raised its inflation forecast for 2022 to 12.5% from 9.6% predicted in February, way above the upper end of its target band of 1.5-3.5%, due to a fast rise in energy prices and supply-side bottlenecks amplified by the war in Ukraine.
Shortly after the publication of the central bank's February inflation report, Russia launched its invasion of Ukraine, an event which through its far-reaching geopolitical and economic consequences led to major reassessments of the economic setting, the central bank, BNR, said in its May inflation report.
For end-2023, the BNR sees inflation at 6.7%, again above the upper end of the target band and more than double compared to 3.2% projected in February.
"The war in Ukraine has fuelled the supply-side bottlenecks already affecting several key global markets, in particular commodity markets, which were gradually resorbing the impact of the COVID-19 pandemic at the time the conflict broke out. In this environment, the global supply-demand imbalance for many commodities and finished goods has rebounded since the end of February," BNR said. This leads to a resurgence of inflationary pressures, on the one hand, and to a slowdown in economic activity, on the other.
The baseline scenario of the latest BNR projection assumes that the war in Ukraine will have the greatest economic impact this year, which will gradually abate in 2023 and 2024.
The central bank estimates that the intensity of inflationary pressures induced primarily by the armed conflict will be stronger in the months ahead, so that, apart from the energy component, the monthly growth rate of the CPI will embark on a gradually declining path over the forecast interval.
"Romania’s trade and financial exposure to Russia and Ukraine from bilateral relations is low, and hence the economic impact via direct channels is quite subdued. However, more substantial effects will propagate via a number of indirect channels. For example, Russia and Ukraine’s large shares of global production of energy, food and certain metals have already caused widespread disruptions in international trade," the Romanian central bank said.
According to the report, Romania benefits from quite generous EU funds allocations and absorbing as large volumes as possible, especially investment funds under the Next Generation EU programme, could act as a buffer for adverse shocks.
Romania's consumer prices rose 13.76% year-on-year in April, compared to an increase of 10.15% in March, the latest data from the national statistical office, INS, showed. April inflation is the highest since February 2004, when Romania recorded a 13.7% surge in consumer prices.
On Tuesday, the BNR has increased its monetary policy rate to 3.75% from 3.00% as of May 11 because of speeding inflation and the war in Ukraine.
(1 euro=4.9480 lei)