Even if the annual adjusted CORE2 inflation rate saw a renewed, slight acceleration over the last months of 2022, contrary to forecasts (rising from 11.9% in September to 14.6% in December), the National Bank of Romania (BNR) expects the headline inflation rate to fall “at a significantly faster-than-previously anticipated pace until mid-2024,” and decides to keep the policy rate at 7% on its February 9 Board meeting – after 11 consecutive rate hikes.

The BNR’s decision was in line with the consensus forecast, and now the analysts expect the central bank to keep the rate at the same level by the end of the year while using liquidity to address exchange rate concerns or address unexpected inflation readings.

BNR “already signalled its discomfort with RON strengthening bias by loosening money market liquidity management,” one of the major banks in the market noted.

Romania’s policy rate is now set at a similar level to interest rates in other countries in Central and Eastern Europe (CEE), like Czechia (7.00%) and Poland (6.75%), where central banks halted their tightening cycles earlier last year, Capital Economics notes.

Also in line with most analysts, Capital Economics doesn’t expect the BNR to cut interest rates until 2024, making it one of the last central banks in the region to transition to monetary loosening.

In its comment after BNR’s decision, Erste Bank said it also expected no further change in broad monetary policy conditions.

“We see the key rate unchanged throughout 2023 at 7.00%. The other Central Banks in the region seem to have stopped hiking for a few months now, and the peak rates of ECB and FED are on the horizon,” the Austrian bank says, elaborating on its expectations.

Erste believes that BNR will use market liquidity management as the primary tool should it prove necessary depending on exchange rate movements and inflation reading, rather than raise the interest rates furthermore. 

iulian@romania-insider.com

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