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Fall in oil prices, unpredictable conflict in Ukraine and delaying in gas price liberalization timetable led to a fall in inflation in Romania, says National Bank governor Mugur Isărescu.
National Bank has revised its forecast for inflation to drop to 1.5% for the end of this year. Also, the central bank reduced the interest rate from 3% to 2.75% per year – a historically low level.
“The intensification of the border conflict leads to disinflation. Coupled with the decline in oil prices and constant gas price … “, said the governor.
Intensification of the conflict in Ukraine and Moscow’s embargo on food products from neighboring countries has led to an increase in imports of cheap vegetables in Romania, that put negative pressure on prices. In addition, oil and gas price liberalization postponement led to a fall in the general prices level.
BNR estimates a cheaper barrel in 2015
According to the National Bank, the barrel will be cheaper also in 2015, the variation between August and November 2014 from 108.5 to 102.7 dollars per barrel, responsible for lower prices in the economy, being estimated to go down to 106 and, respectively, 95 dollars per barrel for the period August to November 2015.
NBR assumptions on barrel price reduction estimates are based on European Commission, Consensus Economics and based on futures prices.
According to NBR, low oil prices had an impact of 0.25% in lowering inflation forecast for the end of the year 2014, while keeping constant the gas prices – of 0.15%. Higher imports of products from countries affected by Russia’s restrictions have led to a decline in prices of 0.3% and cumulative, the three factors led to a change in the inflation forecast of 0.7%, to just 1.5%, versus the 2.2% initially specified threshold.
However, the inflation multi-annual target remains at 2.5%, but Isărescu is not afraid of too sharp a drop in prices (deflation danger).
“I cannot believe at all that the inflatin rate is too low… This lower inflation… even if we’ll not reduce interest, we have other instruments of monetary policy, the reserve requirements on domestic and foreign currency… so there we’re not stuck like other central banks – these tools that can be introduced gradually and with appropriate dosage, to stimulate the economy,” the central bank governor said.
