The National Bank of Romania (BNR) surprised the market with a 1pp rate hike that brings the refinancing rate to 4.75% and the Lombard rate to 5.75% - which is still way behind the inflation rate (14.5% YoY in May, perhaps over 15% YoY in June) and insufficient to generate sizeable effects on consumption or lending.

"We are thinking about debtors," BNR governor Mugur Isarescu said after the monetary policy decision, quoted by Ziarul Financiar daily.

The RON-denominated non-government loans rose by 20% YoY as of May, and the retail sales surged by 8.1% YoY (in comparable prices) - the strongest rate in eight months.

"It is very important to calibrate monetary policy in such a way as to avoid entering the recession as much as possible," Isărescu added, highlighting BNR's concern about economic growth.

On the day before the monetary policy decision, president Klaus Iohannis ruled out any "austerity policy" backing the Government's commitment to public investments (not yet visible in the budget execution numbers).

Most of the increase came again from exogenous CPI components, especially from the hefty and larger-than-anticipated hikes in electricity and natural gas prices, BNR explained in the statement released along with the monetary policy decision.

BNR expects inflation to rise above its forecast issued in May.

"According to current assessments, the annual inflation rate will stick to an upward path until mid-Q3, under the impact of supply-side shocks, yet at a visibly slower pace, thus climbing moderately above the values forecasted in May over the short time horizon," the central bank's statement reads. 

(Photo: Lcva/ Dreamstime)

iulian@romania-insider.com