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Erste Group warns: The EUR will reach RON 4.8 next year, political instability will hinder deficit reduction

The difficult fiscal situation, lower economic growth and the deepening of external deficits will depreciate the national current against the EUR next year to almost 4.8 units, Erste Group warns, romaniajournal.ro informs.

“The occasional episodes of aversion to risk worldwide and/or the domestic shocks will probably trigger RON depreciation by 2-3%, we consider as being below the annual limit set by BNR,” Erste specialists say, quoted by ziare.com.

Erste expects the National Bank to have less opposition to RON depreciation, given that the inflation drops to 1.5-3.5% target and gives no reason to increase the reference interest rate above the current level of 2.5%.

“Given that the inflation will remain within the target in the coming months and the core inflation is down, the central bank has no reason to envisage interest increases, especially if the Government will reverse the fiscal expansion by the end of next year,” the analysts say.

Erste also warns that, following the loss of majority by the PSD-ALDE ruling coalition in the Chamber of Deputies, political instability could increase, which would hinder the fiscal consolidation.

“The increase of political instability will hinder fiscal consolidation, given that the parties are on permanent election campaign,” Erste says.

The execution of the consolidated state budget in the first ten months of 2018 has concluded with RON 20.9 billion deficit, i.e. 2.2% of GDP, the Finance Ministry informed.

Last year, the budget deficit was of RON 6.61 billion, i.e. 0.77% of GDP.

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