Romania’s parliament summons central bank governor over inflation

Romania’s parliament summons central bank governor over inflation
By bne IntelliNews March 28, 2018

Members of the senate’s expert committee for economy have invited central bank officials to discuss the dynamics of inflation and the impact on the economy on March 29, hotnews.ro reported. Governor Mugur Isarescu will attend the meeting, central bank spokesperson Dan Suciu confirmed.

The senators’ invitation follows rising criticism expressed by the ruling coalition against the monetary authority and seems to be an attempt to gain a degree of control over monetary policy. The expiry of Isarescu’s term in 2019 smooths the government's plans. 

The ruling coalition has already blamed the monetary authority for the rising consumer prices and interest rates. Nonetheless, the central bank is still in a position to reiterate its concerns related to the inflationary impact of the imminent fiscal slippage after the general government’s budget hit 0.6% of GDP in January-February.

The central bank is expected to tighten monetary policy by repeatedly hiking the policy interest rate from 2.25% currently until the end of the year. This would address inflationary pressures prompted by past income and fiscal policies, but the current fiscal policies pose additional risks and the monetary authority could be forced to tighten monetary policy up to a level particularly problematic for financial intermediation, which is currently failing to gain momentum (rather the opposite, judging from February loans data). This would hurt this year’s growth, which independent analysts already see significantly below the government’s hopes of 6%.

Indeed, Romania’s consumer price inflation accelerated from 4.3% y/y in January to 4.7% y/y in February, thus reaching the highest level since June 2013 amid rising energy and food prices magnified by the local currency weakening by 1.3% y/y versus the euro.

The February inflation figures are in line with the central bank’s scenario, which stipulates an inflationary episode during Q1-Q3 this year (with the 5.1% y/y peak expected at the end of Q2) followed by a gradual deceleration of consumer prices to 3.5% y/y at the end of 2018 and 3.1% y/y one year later.

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