Romania’s central bank (BNR) confirmed analysts’ expectations and hiked by 50bp the refinancing rate to 6.75% at the board meeting on November 8 - the latest monetary policy decision this year.

The moderate step (some analysts were not ruling out a 75bp rate hike) leaves the door open for another step in early January - depending on the developments in terms of inflation and economic growth. Otherwise, BNR’s policy keeps its dovish stance based on the view that more costly financing would hurt the economy more than tame exogenous-driven inflation.

However, it admits that the CORE-2 inflation continued to climb at a sustained, faster-than-expected pace in Q3” to 11.9% YoY in September from 9.8% YoY in June. But this owed “almost entirely to the new rises in processed food prices,” the central bank points out.

The revised quarterly Inflation Report expected for November 14 will shed more light on BNR’s views as regards the drivers of the headline inflation - while it already announced an upward revision of the inflation trajectory over the forecast period. Namely, “the annual inflation rate is expected to keep growing mildly towards end-2022 and then embark on a gradual downward path, which is seen declining to one-digit levels in 2024 H1 and steepening afterwards, although remaining slightly above the variation band of the target at the end of the projection horizon.”

While the risks to the inflation outlook tend to balance overall, the outlook still depends on Government’s policy.

The absorption of EU funds, especially those under the Next Generation EU programme, is important for its impact on overall growth and, separately, major uncertainties and risks are associated with the fiscal policy stance.

iulian@romania-insider.com

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