At its July 5 monetary Board meeting, Romania's National Bank (BNR) kept its benchmark interest rate unchanged at 7.00% as expected and confirmed the inflation rate will continue to fall over the following months, in line with the latest medium-term forecast (May 2023), primarily under the influence of base effects and the downward corrections of some commodity prices in previous quarters.

Romania's policy rate thus remained unchanged since January, when the latest rate hike was operated.

"The central bank is likely to be the last in the region to transition to interest rate cuts, which we expect early next year," Liam Peach, senior emerging markets economist at Capital Economics, said in a statement quoted by Reuters.

The BNR expects the annual inflation to drop from 10.6% y/y in May to 7.1% at the end of this year and 4.2% at the end of 2024 - still above its target of 2.5% +/-1.5pp.

Central Bank Governor Isarescu said rate cuts are unlikely until interest rate levels and inflation converge. He also said a firmer leu currency would not sustainably help lower inflation.

Economic growth in the second quarter will be slower than previously forecast, the bank said in its policy decision reasoning, but it underlined the continued growth of household consumption and investment in the first quarter.

iulian@romania-insider.com

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