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BNR expecting inflation to decrease to 3.8pct in June 2025
The National Bank of Romania (BNR) is expecting inflation to go down to 7.5% in December 2023, to 4.4% at the end of 2024 and to 3.8% in June 2025, according to this institution's August 2023 inflation report.
"According to the baseline scenario, the annual CPI inflation rate is projected to stick to its downward path throughout the projection interval, yet remaining above the variation band of the target (7.5 percent in December 2023, 4.4 percent in December 2024 and 3.8 percent in June 2025, i.e. the projection horizon). Compared with the May 2023 Inflation Report, the forecast for end-2023 was revised upwards by 0.4 percentage points. The differences stem chiefly from the faster dynamics of the adjusted CORE2 index and, to a lower extent, from those of the VFE - vegetable, fruit, egg - index, with the latter component depending almost entirely on weather conditions, which have recently become highly unpredictable. Conversely, the energy component is expected this year to increase its deflationary contribution (its negative annual rate anticipated for December will be ascribable to the electricity and natural gas components). Therefore, in December 2023 compared to end-2022, energy prices will reduce their contribution to the annual CPI inflation rate by approximately 4.7 percentage points, while CPI inflation is seen declining by about 8.9 percentage points over the same period," reads the reports.
According to the BNR, since the previous inflation report, risks to the baseline scenario appear to have risen in number and, at the same time, to have diversified. The assessed balance of risks suggests possible upward deviations of inflation from its path in the baseline scenario. While the developments attributed to the economic effects of the war in Ukraine, but also to the more general, geopolitical ones, were reconfirmed as a major source of uncertainty, the risks associated with the future fiscal stance amplified noticeably. Hence, the authorities are highly likely to take corrective measures with a direct impact on the annual inflation rate.
BNR's Isarescu: When tax privileges exceed 10-15 years, they become market distorting annuities
When well-targeted, tax privileges are granted for 1-5 years, but when they exceed 10-15 years, they become annuities that distort the market, Governor of the National Bank of Romania (BNR) Mugur Isarescu told a news conference on Wednesday releasing the latest BNR quarterly report on inflation.
"The business environment should not, so to speak, be overburdened with many taxes. That's fine, but everyone has to pay taxes. Right? You see, these tax privileges if they are well-intended, they cover 1 year 2, 3 , 5 years. When they exceed 10-15 they are no longer privileges, they become annuities. They become annuities that distort the market, right? And they also create problems in terms of solidarity and cohesion. Now I understand that some people even want life annuities. It doesn't work. Apropos of the business environment: it's not about overburdening them, but to say what former Prime Minister Teodor Stolojan would say, we have to gradually repeal the tax privileges," said Isarescu when asked about changes in taxation for the business.
He added that any change in taxation is a difficult political decision to make.
"Just as the business circles, the business people, say, sir, we want predictability, we want to be able to look into the future, but so do the state bodies if we want them to operate as they should; we don't have to shake them up every day with reforms. So it's a hard job. It's a political decision. I made a reform in 2000 and I know what it's like. Romania's problem is much more serious from a fiscal point of view than is discussed in bits and pieces. Why? Because the country wants it, that's why they say, we want a country like the one abroad; it wants quality public services, we want motorways, we want quality schools, we want hospitals and quality healthcare, and if you add all these requirements you reach 40-50% of the GDP. I myself was a prime minister sitting at the table also in a coalition government. The requests were 40% and I had to solve the problem, to cover 40% with only 32%. Really? Now there is more than 40% and we want to cover them with 27% of GDP revenues. It's a tough job. That's why we support the government finding solutions, but it's the government's decision, not ours," said Isarescu.
Asked if he still wants his term of office extended after it expires in the autumn of 2024, the BNR governor replied that "It's up to Parliament to decide."