Romania’s central bank sees the end-year headline inflation at 3.1% y/y and also forecasts that the annual inflation would remain within the 1.5%-3.5% targeted band for the two-year horizon envisaged, its latest Quarterly Inflation Report shows. It is the second consecutive downward adjustment of the forecasts issued on a quarterly basis by the central bank.

The previous forecasts for the year-end inflation were 3.2% y/y [May] and 3.5% [February]. The latest adjustment is not of a wide magnitude, but it adds to another messages of the central bank [including the deeper-than-expected 50bps interest rate cut earlier this month] aimed at enhancing the disinflationary expectations.

The disinflation might be actually stronger in the coming months, the central bank explains. In the near run, the inflation rate may fall lower than projected, in view of the incoming information after the macroeconomic forecast was completed and therefore left out of the baseline scenario.

A special mentioning deserve the signals on domestic bumper crops of volatile food items (VFE) and of some raw materials for processed foodstuffs, as well as the government’s announcement on cutting the VAT rate applied to flour and bread as of September 1, 2013.