Bank analysts turned more cautious about predicting an imminent rate cut at the May 13 board meeting of the National Bank of Romania (BNR), as both domestic and external developments over the past month are supporting a more cautious approach on the side of the monetary authority.

The concerns are mostly related to the impact of the expansionist fiscal policy this year and the fiscal corrective package next year but also to the more cautious sentiment among the region's and global central bankers.

Romania's central bank may need more time before delivering the first reduction in borrowing costs in more than three years as inflation isn't slowing as fast as expected and risks remain elevated, Cristian Popa, a member of the Board of Administration of BNR, told Bloomberg in mid-April.

"At this moment, it is not at all clear whether the conditions will allow the start of the normalisation process in May," said Popa at that time.

Only four of the six bank analysts surveyed by Bloomberg believe that BNR will cut the policy rate (chart), while the other two expect the monetary authority to defer the move, according to Economedia.ro.

The rate cut would mark the beginning of the monetary easing cycle after BNR kept the rate at 7% since January 2023. With the April inflation expected only after the board meeting (but supposedly known by the board's members), the analysts are in an asymmetric position.

Although no bank analyst mentioned it, the elections for the BNR governor seat, where Mugur Isarescu may get another term, could have influenced their expectations for a rate cut rather soon.

More than encouraging corporate lending (blocked rather by companies' weak bankability and their reliance on government-backed schemes) and thus helping economic growth, the move would help the government get financing at a more affordable cost at a critical moment. 

The headline inflation dropped to 6.6% y/y in March. It thus decreased for two consecutive months – a pre-condition mentioned by BNR for easing the monetary policy. But the inflation in the first three months of the year reached 2.35% already – half of the full-tear 4.7% target.

iulian@romania-insider.com

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