2024-01-12 13:07:00
The NBR maintained the key interest rate, in line with the expectations of economists and analysts. The governor of the NBR ruled out discussing interest rate cuts until inflation drops “significantly” and the disinflation process becomes truly irreversible, according to a report by Erste Bank.
BNR – National BankPhoto: Hotnews / Florin Barbuta
At the same time, Isărescu suggested that discussions on reducing rates might begin once inflation falls below the key rate, that is, sometime in the second quarter of the year.
Despite November inflation falling below the key rate, economists say we will see a new inflationary push in the first quarter, as an effect of the Government’s fiscal measures.
What the BNR release shows:
- The annual rate of inflation accelerated its decline more than expected in the first two months of the fourth quarter of 2023, falling to 6.72 percent in November from 8.83 percent in September, as food and energy price increases continued to slow, as well as as a result of cheaper fuels.
- Economic activity slowed significantly in the third quarter of 2023 to 0.9 percent from 1.6 percent in the previous three months (quarter-on-quarter change), but less than forecast.
- Compared to the same period last year, the GDP advance increased marginally in the third quarter, to 1.1 percent, from 1.0 percent in the second quarter, thus remaining modest from a historical perspective, given that the variation in stocks and – increased the already very high contractionary impact, and the contribution of public administration consumption became slightly negative.
- The latest data point to a slight slowdown in the quarterly pace of GDP in the fourth quarter of 2023, but implying stronger economic growth in annual terms over this period than previously forecast.
- In October 2023, retail sales and services provided to the population re-accelerated their growth compared to the same period of the previous year, and the still high annual dynamics of car-motorcycle sales visibly moderated their decline.
- At the same time, industrial production eased its contraction significantly in annual terms, and the volume of construction work continued to grow at a double-digit annual pace, albeit decelerating from the third quarter.
- On the labor market, recent data show a halt in the monthly growth of the number of employees in the economy in September-October and the relatively stable maintenance of the BIM unemployment rate including in November. According to specialist surveys, employment intentions in the very short time horizon accentuated their decline in the fourth quarter of 2023, and the labor shortage reported by companies has significantly reduced.
- The annual inflation rate will increase in the first month of the current year and then resume its gradual decline, on a lower trajectory than that highlighted in the November 2023 medium-term forecast. The increase will be driven by the increase and introduction in January of indirect taxes and fees in order to continue the budgetary consolidation
- Uncertainties and risks regarding the inflation outlook arise, however, from the comprehensive package of fiscal-budgetary measures recently implemented in order to support the budgetary consolidation process, as well as from the capping measure on the commercial addition to basic food products that is due to expire in February 2024.
- Significant uncertainties and risks are associated with the future conduct of fiscal and revenue policy, considering the budget execution in 2023 and the coordinates of the approved budget program for 2024, as well as the implications of the new legislation on pensions and wage dynamics in the public sector, which might claim the addition in perspective of the package of corrective fiscal-budgetary measures, including in the context of the excessive deficit procedure and the conditionalities attached to other agreements concluded with the EC.
- Uncertainties and risks regarding the outlook for economic activity, implicitly the medium-term evolution of inflation, continue to generate the war in Ukraine and the conflict in the Middle East, as well as economic developments below expectations in Europe, especially in Germany. At the same time, the absorption of European funds, mainly those related to the Next Generation EU program, is conditional on meeting strict targets and benchmarks. It is, however, essential for achieving the necessary structural reforms, including the energy transition, but also for counterbalancing, at least partially, the contractionary effects of geopolitical conflicts and the tightening of economic and financial conditions at the international level.
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