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Romania Monetary Policy August 2022

Romania: NBR delivers 75 basis point hike in August

At its meeting on 5 August, the National Bank of Romania (NBR) raised the policy rate to 5.50% from 4.75%. This decision marked the eighth consecutive hike. Concurrently, the Bank also raised other key rates: the lending facility (Lombard) rate to 6.50% (previously: 5.75%) and the deposit facility rate to 4.50% (previously: 3.75%). Meanwhile, the minimum reserve requirement remained unchanged.

Price pressures continued to rise at the end of Q2, which led the Bank to continue its tightening cycle. However, the Bank pointed to an easing in hiring intentions in Q3 and a slowdown in economic activity in Q2 and Q3, which were likely factors behind the decision not to hike more aggressively.

While the Bank did not give explicit forward guidance in its press release, further rate hikes are likely by end-2022 given ongoing high inflation. That said, the policy rate is likely to remain below that of regional peers such as the Czech Republic, Hungary and Poland. Interest rate decisions by central banks in the region, as well as by the European Central Bank and the U.S. Fed, will have a bearing on the NBR’s stance ahead. Our panelists currently forecast close to 100 basis points of additional tightening later this year.

On the NBR’s ability to meet its 2.5% (±1 percentage point) inflation target, Nicolaie Chidesciuc from JPMorgan noted:

“Considering that the bank hiked too little to control expectations and that it remains reluctant to tighten as it aims to avoid a recession, despite rather reasonable growth currently and large EU funds available, we do not believe in a return to the target in 2024 or later, unless a deep recession materializes. Otherwise, we tend to believe that the NBR will have to keep the key rate elevated for the long term and will still be unable to meet the target – EU funds should keep growth strong and the inflation elevated.”

The next monetary policy meeting is scheduled for 5 October.

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