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Nov 14, 2022 13:57 EEST
November 14 (SeeNews) - Romania's central bank said on Monday it is raising its inflation forecast for 2022 to 16.3% from 13.9% projected in August, way above the upper end of its target band of 1.5-3.5%, due to supply side risks amplified by the war in Ukraine.
Inflation is seen at 11.2% at the end of 2023, up from 7.5% forecast in August, the central bank, BNR, said in its November inflation report.
"Since the publication of the August 2022 Inflation Report, which had already pointed to growing uncertainty, associated with economic, social and geopolitical developments, some of the risks identified at that moment have materialised. Most of them were supply-side risks, weighing on economic activity, together with stronger inflationary pressures," the BNR said.
"The global business cycle appears to have evolved at a quite substantially slower pace, as energy price inflation rose further and monetary policy tightening by central banks passed through gradually to economic activity," the bank added.
Against this background, global financial market sentiment continued to worsen, inter alia due to escalating geopolitical tensions caused by Russia’s invasion of Ukraine, according to the report.
Hence, consumer and business confidence hit new lows compared to the pre-pandemic period, which also substantiated further revisions of key macroeconomic variable projections to less favourable levels, the BNR also noted.
Over the short term, the magnitude of the effects induced by still favourable demand conditions, allowing higher production costs to feed through into the final prices of goods and services, is assessed to be relatively small, the bank said, noting that by contrast, supply-side shocks, fueled by the war in Ukraine, remained the main source of inflationary pressures.
These pressures are expected to intensify in the near run, so that 12-month headline inflation is foreseen to peak in the last quarter of this year, according to the bank. In the case of energy, especially natural gas and electricity, a slowdown in annual growth will become manifest in the final part of this year, owing to the authorities’ price capping measures, on the one hand, and to a statistical effect, given that prices of these goods surged in the same year-ago period, on the other hand. Subsequently, starting in the first quarter of 2023, the annual CPI inflation rate will embark on a gradually decreasing path.
The central bank said that its latest inflation forecast did not take into account changes to a government energy support scheme approved on Friday, which partially regulated the energy market by enforcing a centralised mechanism for the purchase of electricity and capped the selling price.
The bank's inflation and economic activity projections are contingent on the absence of escalation and generalisation of the armed conflict in Ukraine, the gradual fading away of tensions in Europe’s energy markets, and the non-resurgence of COVID cases, according to the report.
Romania's consumer prices rose by 15.32% year-on-year in October, compared to an increase of 15.88% in the previous month, the national statistical office said last month.
On November 8, the BNR said it decided to increase its monetary policy rate to 6.75% from 6.25%, aiming to anchor inflation expectations over the medium term, as well as to foster saving through higher bank rates.
(1 euro=4.8982 lei)
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