May 15 (SeeNews) - Romania's central bank, BNR, said on Monday it lowered its 2017 inflation forecast to 1.6% from previously projected 1.7%, adding that a downward revision of inflation projection could delay a hike of its key rate planned for 2018.
BNR also lowered its end-2018 inflation forecast to 3.1% from a previous 3.4% projected in February.
"The main feature of inflation in the first quarter was the return to positive territory after two years - a relatively positive development. However, inflation is still at a very low level, given the low interest rates," central bank governor Mugur Isarescu said in a statement.
"The effect of the VAT cut is fading but inflation's trajectory continued to bear the mark of some tax cuts," Isarescu added
Romania returned to inflation in January following 19 straight months of deflation that began in June 2015 after a 9% cut in VAT rate was expanded to include all food items, non-alcoholic beverages and food service activities. In addition, Romania cut its standard VAT rate from 24% to 20% at the start of 2016 and then to 19% starting January 2017.
Romania's annual consumer price inflation accelerated to 0.6% in April from 0.2% in March, hitting a 23-month high.
With regard to monetary policy, BNR said that a downward revision of its inflation forecasts could bring a slight delay in monetary policy action, without giving a specific timeline. In its previous inflation report in February, BNR said it expects changes in its key rate by the end of next year.
BNR maintained on May 5 its monetary policy rate at record low 1.75%, but decided to cut the minimum reserve requirement ratio on foreign exchange-denominated liabilities of banks to 8% from 10%.The minimum reserve requirement ratio on leu-denominated liabilities remained unchanged at 8%.
Romania's central bank last changed its key rate in May 2015, when it cut it by 25 basis points.
(1 euro=4.5499 lei)