2023-08-07 07:47:00
BNR will keep the key interest rate at 7% on Monday, according to the reports sent by commercial banks to investors, and inflation will moderate its growth, if the Ordinance on price increases does not cause the adverse effect: higher prices on the background of new taxes and the increase of some existing ones.
BNR – National BankPhoto: Hotnews / Florin Barbuta
Although the fiscal measures provided for in the Ordinance somewhat spoil the Governor’s games on the inflation side, the tensions between the NBR and the Government are well kept under control. 5 years ago Liviu Dragnea’s PSD started a war with the Central Bank, demanding, among other things, that the BNR’s monetary policy be made following the agreements with the Government. see here Dragnea’s letter to Isărescuand you can read here the Governor’s answer.
But now we are before an election year and no one likes to throw in the handkerchief first.
In the context of the high budget deficit and expectations of indirect tax increases, confidence in the economy has decreased. “We observe a return of inflation expectations; both the anticipated inflation for the next 12 months and the ROBOR 3M interest rate have increased”, says the vice-president of the CFA Romania Association Adrian Codirlașu. His view is shared by other economists in reports sent to investors.
The confusing and non-transparent way in which the Government works to cover the slippage of expenses compared to what is collected in the budget is also highlighted in a report sent a few days ago by BRD, which evokes the possibility of increasing indirect taxes.
“There are notable uncertainties and risks surrounding the inflation outlook, stemming from both the domestic and external environment: i) the continuation of the war in Ukraine and future policy decisions regarding retaliatory actions, ii) the degree and magnitude of the monetary impact of tightening the policies by the big central banks on global economic/financial activity stability, iii) the future decisions of the OPEC+ countries regarding oil production, iv) the ways to reduce the fiscal gap by the Government (indirect tax increases!?)”, it says BRD report.
BCR representatives also say they expect the BNR to keep the monetary policy rate unchanged at 7.00% at the August 7 Board meeting. The updated inflation forecast is expected to see minor changes, although upside risks to the CPI outlook are likely to be highlighted, including due to tax changes. June CPI surprised higher than the Bloomberg consensus and previous NBR estimates, which both stood at 10.2% y/y. Core inflation continued to decline in June to 13.5% y/y from 13.6% in May, in line with our expectations, although it beat the NBR’s forecast of 13.3%. Therefore, we might see a marginal upward revision of the NBR’s outlook for core CPI. We see the key rate unchanged until mid-2024,” the BCR document also states.
We remind you that Statistics will publish the inflation figures for July on August 11. In June it was 10.3%
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