“Our ICE Brent price forecast downward revision to US$60/bbl and US$70/bbl for end- 2016 and end-2017, from US75/bbl and US$80/bbl, respectively, is the main reason for revising our inflation outlook,” ING said in a report Thursday.
ING incorporated in the updated forecast new information on administrated prices adjustment calendar, expecting now a lower impact on next year’s inflation as the regulator is pushing for a price decline for electric energy prices that is likely to offset part of the planned increase due to a compulsory share of green energy in the basket. The new forecast maintains ING’s call for a stronger RON in 2017.
October inflation, of -1.64%, is a bit above ING forecast of -1.7% YoY on higher volatile fresh vegetables prices reflecting the drought’s impact. Food CPI dynamics remain heavily influenced by the VAT cut, with the effect coming out of the statistical base in June 2016.
According to ING, the 4ppt headline VAT cut in January 2016 will keep the inflation outlook subdued for longer.
ING expects Romania’s central bank to remain in easing mode and use the opportunity to cut the reserve requirements ratio for local currency by 6ppt (in three equal steps) to 2% during 2016, releasing about RON9 billion of liquidity.
Romania’s central bank has revised its annual inflation forecast for this year and sees it at -0.7% from -0.3% in August, considering the impact of tax cuts, and also revised the inflation forecast for 2016 to 1.1% from 0.7% envisioned back in August.
Central bank governor Mugur Isarescu said annual inflation in Romania is expected to remain in negative territory until May 2016 and return to positive territory by the end of 2016, when it is seen below 1.5%.
The inflation rate is expected to re-enter the central bank’s target band of 2.5% plus/minus one percentage point in 2017.