Romania Raises 2014 CPI Forecast on Fuel Tax, External Risks

Romania’s central bank raised its 2014 inflation forecast, saying a planned fuel tax may spur price growth and a sell-off of emerging-market assets may curb capital flows.

The Banca Nationala a Romaniei predicts year-end inflation will be 3.5 percent, compared with a November estimate of 3 percent, Governor Mugur Isarescu said today in Bucharest. It sees consumer prices advancing 3.2 percent next year, he said.

“The main risk comes from the volatile external environment, which could affect the rate in both directions,” Isarescu said today. “Uncertainties about the electoral year and the planned new excise tax will draw the risk balance up.”

Policy makers have been lowering borrowing costs since July to reverse a lending contraction and stoke economic growth, leaving interest rates at a record-low. That easing cycle has probably come to the end with Romania’s benchmark “well positioned” at 3.5 percent, Isarescu said.

The leu bucked a regional trend of declining currencies, gaining 1.8 percent during seven days of gains through yesterday, the longest winning streak since March 2011, according to data compiled by Bloomberg. It traded 0.1 percent weaker at 4.4631 per euro today in Bucharest.

Inflation slowed to 1.6 percent from a year earlier in December, the lowest level since at least 1992. The central bank is targeting 2014 price growth of 1.5 percent to 3.5 percent. The statistics institute is due to publish January inflation data on Feb. 12.

Romania’s economy grew 4.1 percent from a year earlier in the third quarter, the fastest in two years. The International Monetary Fund estimates growth at 2.2 percent this year from an estimated 2.8 percent in 2013.

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