The central bank board also approved the November 2020 inflation report on Thursday and will release it on Friday.
Romania’s annual CPI inflation rate decelerated to 2.45% in September (from 2.68% in August) and to 2.24% in October, mainly amid the much larger-than-expected decline in fruit and vegetable prices.
“The new scenario partly reconfirms the expected trajectory of the annual inflation rate highlighted in the previous forecast, with a significant downward revision only over the short-term horizon. Specifically, the annual inflation rate is anticipated to decline further in the near future, to markedly lower values than previously envisaged, before climbing and remaining thereafter close to the mid-point of the target over the policy-relevant horizon, the same as in previous forecasts. At the same time, the outlook for adjusted CORE2 inflation is fully reconfirmed, as its annual rate is seen decelerating only slightly at end-2020, but much more visibly afterwards, declining in the latter part of next year and thereafter remaining slightly below the mid-point of the target, amid the disinflationary effects from the aggregate demand deficit,” the central bank said.
It added uncertainties surrounding the new macroeconomic projections remain high, triggering two-way risks to the inflation outlook over the projection horizon. Their major source remains, at least in the short run, the coronavirus pandemic and the related containment measures in the context of the new wave that gains increasing momentum, as well as their impact on the domestic and European/global economies.
Heightened uncertainties and risks stem from the outlook of the fiscal and income policy stance, especially in the absence of the draft budget for 2021 and in the electoral context, given the potentially sharper increase in budget expenditures this year – with knock-on effects on future budget executions and hence on the sovereign risk premium –, as well as the budget consolidation necessary to be initiated in the near run; the impact of the consolidation could be partly counterbalanced by the intake of European funds allocated to Romania via the EU’s recently-agreed economic recovery package and multiannual budget.
Significant uncertainties and risks also stem from the external environment, given the relatively more robust recovery of European economies in the third quarter, which could nevertheless be halted or even reversed slightly by the new pandemic wave and the associated containment measures.