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ING reduces inflation estimates in Romania for 2015 and 2016

ING reduced Romania’s inflation estimates for 2015and 2016 by 0.2%, to -0.7% and 1.2%, while for 2017 the prognosis increased by 0.6% to 2.7%, the main reason being dropping oil prices.

The bank reviewed estimates referring to the price of Brent oil at London stock exchange to 60-70 dollars/barrel for the end of 2016 and 75-80 dollars/barrel for 2017, an analysis published on Thursday by the financial institution shows.

ING incorporated the new estimates referring to the calendar adjusting administered prices in estimates referring to inflation, anticipating a lower impact on inflation, when authorities request the reduction of electricity prices, which will compensate a part of the increase determined by the compulsory green energy in the consumer basket.

New estimates include expectations for the appreciation of the leu in 2017.

The annual inflation in October of -1.64% exceeds ING expectations of -1.7% as a result of volatile prices of fresh vegetables, reflecting the impact of draught.

The dynamic of foodstuff prices is influenced by VAT reduction, the effect of the measure disappearing from statistics in June 2016.

The bank anticipates that the reduction of VAT by 4% to 20% in January 2016 will maintain inflation at low level for a long period of time.

According to ING, the National Bank of Romania will continue the relaxed monetary policy and will reduce the level of minimum mandatory reserves in local currency by 6%, to 2% in 2016, issuing cash flow of 9 billion lei.The annual inflation rate was negative in June, for the first time in the last 25 years - to 1.6%, when prices were 3% lower than in May, on the background of VAT reduction for food and beverages to 9% as of June 1.

BNR reviewed again, last Thursday, the prognosis for the annual inflation rate to -0.7% for the end of the year, on the drop by 0.4% compared to the August estimate and to1.1% for the end of next year, rising by 0.4%.

The scenario of the central bank includes Fiscal Code provisions and amendments brought by the emergency order in October.

‘Without the impact of round I of VAT reduction, the inflation rate foreseen will reach 2.1% at the end of the year and 2.7% in 2016,”BNR governor Mugur Isarescu said at the conference presenting the quarterly report on inflation.

He showed that the annual inflation rate is anticipated at negative values until May 2016 and will return later in positive territory, but lower than the inferior limit of BNR target of 2.5% plus/minus 1%, therefore under 1.5%, until the end of the following year.

The annual inflation rate is estimated to enter the interval again in 2017.

At the August prognosis, BNR estimated an inflation of -0.3% in 2015 and 0.7% for the end of next year.