Romanian central bank revises upward inflation forecast
The National Bank of Romania (BNR) has revised upwards its headline inflation projections for the end of 2021 to 4.1% (+ 0.7 pp compared to the previous scenario) and for the end of 2022 to 3% (+ 0.2 pp).
While one-off shocks will lead to transient effects this year, the economic recovery (and possibly rising commodity prices) could generate a deeper (still considered moderate) impact next year.
The headline inflation revision may look broad (especially for 2021), but the BNR is keeping the CORE2 adjusted inflation forecast roughly unchanged over the course of this year – which solidifies analysts’ expectations for no tightening. policy by the end of 2022. Specifically, the BNR sees CORE2 inflation adjusted to 2.8% at the end of 2021 and to 3% at the end of 2022.
Nonetheless, the BNR now forecasts slightly stronger underlying inflationary pressures in 2022 compared to forecasts published in March (provisioning of the CORE2 advance of 2.7%) thanks to better economic performance and inflation expectations. higher. In addition, upside risks associated with widespread increases in commodity prices and supply chain bottlenecks.
“We expect the BNR to remain on hold until the fourth quarter of 2022, when the first 25bp rate hike could be achieved. However, we see risks that the BNR could start the policy rate hike cycle earlier if the central banks of Poland and Hungary were to start raising rates before the fourth quarter of 2022 ”, writes Raiffeisen Bank in a research note. .
Regarding headline inflation, the BNR cited the sharp rise in electricity prices in January (+ 18%), an estimated 10% increase in natural gas prices in July and pressures on the volatility of food prices in 2022.
The quarterly inflation report highlights the one-off nature of this year’s shocks estimating that inflation will return to more than 4% this year within the inflation band (2.5% +/- 1 pp) from the first quarter of 2022.
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