Quarterly inflation report

In May this year the National Bank of Romania forecast a 12.5% inflation rate for the end of this year and 6.7% for the end of next year. Three months later, estimates were pointing to higher figures, i.e. 13.9% for 2022 and 7.5% for end 2023.

These days, the central bank came up with new figures, and adjusted its inflation forecast to 16.3% for this year and 11.2% for next year, with the rate expected to go down to around 4% in September 2024.

Price increases have slowed down in the last few months, central bank experts say, but significant differences compared to last year will remain. According to the National Bank's quarterly inflation report, made public on Monday, a decrease in inflation will depend on a number of variables, particularly the consequences of the war in Ukraine and the developments related to raw materials, energy and food prices.

Governor Mugur Isărescu: "As far as the war in Ukraine is concerned, our position is, so to say, slightly positive, although not fully optimistic. The effects of the war will be gradually mitigated, we do not expect major declines. As for raw materials, data indicate prices are beginning to settle. Bottlenecks in global value-added chains are likely to dwindle, there are no indications of a resurgence of COVID infections, and the macroeconomic policy mix is positive. So far we've worked well with the government and the normalisation of the monetary policy continues."

Mugur Isărescu also said that key interest rate increases in Romania have been comparable to the measures taken by other central banks in the region. Interest rates are not very high in Romania compared to other countries, and the national currency is one of the most stable in the region, the governor explained, and added that, had the currency depreciation put further pressure on the inflation, the situation would have been a lot more difficult, as we see in Hungary, for example.

In Romania, interest rates have been raised gradually, and the central bank sought to allow time for those who had taken out loans in the national currency to get used to the new levels and with the fact that the age of negative or very small interest rates is over, Mugur Isărescu pointed out. The central bank official also voiced confidence that next year Romania's economy will only see slower growth, rather than technical recession, i.e. two consecutive quarters of negative GDP growth, but that this mainly depends on the government's ability to attract EU funding. (AMP)