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Romania Monetary Policy February 2022

Romania: NBR delivers fourth consecutive hike at February meeting

At its meeting on 9 February, the National Bank of Romania (NBR) raised the policy rate to 2.50% from 2.00%, marking the fourth successive hike. The move was double the previous three moves of 25 basis points, and was larger than expected by market analysts. Concurrently, the Bank raised the deposit facility rate to 1.50% from 1.00%, and hiked the lending facility (Lombard) rate to 3.50% from 3.00%. Elevated inflation, which exceeded the Bank’s expectations, dominated the decision to hike rates; the headline reading rose to 8.2% in December and has subsequently pushed higher to 8.4% in January. Against this backdrop of high energy costs, as well as persistent supply chain disruptions, the Bank forecasts a “considerable worsening of the short-term outlook for inflation” and as such, it saw it fit to raise rates more aggressively.

Looking ahead, the Bank reiterated its commitment to bring inflation back to within its 1.5%–3.5% target “in a manner conducive to achieving sustainable economic growth”. Meanwhile, the Bank stressed that downside risks persist, particularly related to the absorption of EU recovery funds, developments in commodity prices and the escalating Russia-Ukraine conflict. Our panelists see several rate hikes this year, with the majority expecting an increase of between 25–100 basis points in Q2.

With regard to the monetary policy outlook, Kevin Daly, economist at Goldman Sachs, said:

“Against the backdrop of strong and persistent price pressures and rising short-term inflation expectations, we expect the NBR to maintain its hawkish monetary policy stance and tighten significantly further. We expect additional tightening to come via parallel increases in the policy rate and the corridor. We forecast policy rates to peak at +3.50% in Q2 2022.”

The next monetary policy meeting is scheduled for 5 April 2022.

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