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BNR changed to 1.4 percent its inflation forecast for the end of 2016
The National Bank of Romania (BNR) has changed to 1.4 percent its inflation forecast for the end of 2016, up by 0.3 percentage points as against the 1.1pct figure announced previously according to data presented on Tuesday by the central bank's governor, Mugur Isarescu in a press conference.
For 2017, the BNR forecasts 3.4pct inflation rate. The central bank's target is 2.5 percent.
The BNR Board examined and approved in its 5 February 2016 meeting the quarterly report on inflation.
"Inflation remained in negative territory at the end of 2015, in line with the projection. Behind this stood mainly the broadening of the scope of the reduced VAT rate to all food items, non-alcoholic beverages and food service activities starting June 2015.
The annual inflation rate touched -0.9 percent in December 2015, compared with -1.1 percent in November and the record low of -1.87 percent seen last August. The rise was attributed to the base effects stemming from fuel price movements, faster pick-up in tobacco product prices, as well as the influences of the swifter narrowing of negative output gap and the relative weakening of the local currency.
In the absence of the measure on broadening the scope of the reduced VAT rate, the annual inflation rate would have neared 2 percent at year-end, standing inside the ?1 percentage point variation band of the 2.5 percent target. (...)
The new quarterly forecast reconfirms the outlook for inflation to go deeper into negative territory January through May 2016, as a result of the cut in the standard VAT rate and in other indirect taxes. At the same time, the forecast points to the annual inflation rate re-entering the variation band of the target at the beginning of 2017 and remaining there afterwards. This is attributable to the fading out of the transitory disinflationary impact of the standard VAT rate cut, to the easing of the fiscal policy stance and to the rise in unit wage costs. The successive indirect tax cuts in the period from 2015 to 2017 cause the volatility of inflation rate over the projection interval," BNR's release reads.