A couple of hours before the fall of the cabinet of prime minister Florin Citu on October 5, the National Bank of Romania (BNR) announced that it is increasing the monetary policy interest rate by 25bp to 1.5%.

It was not a matter of if, but a matter of when - and the analysts expected the rate hike for November.

The sudden deterioration of the political balances over the past weeks have most likely weighted significantly in the central bank's decision, which runs a managed exchange rate floating regime. But this has only triggered the expected beginning of the interest rate normalisation cycle.

The annual adjusted CORE2 inflation rate went up to 3.0% in July, from 2.9% in June, and to 3.2% in August, thus coming slightly above the forecast, BNR said in its October 5 monetary policy decision.

Higher inflation is the result of a combination of demand and supply-side (rising prices of some commodities, including agri-food items, and higher energy and transport costs) effects, BNR explained. 

BNR confirmed that the inflation forecast is going to be revised upwards.

"The current assessments indicate the outlook for the annual inflation rate to rise over the short time horizon to significantly higher values than those anticipated previously," the central bank's statement reads.

iulian@romania-insider.com

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