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Romania Monetary Policy January 2022

Romania: NBR delivers third consecutive hike in January

At its first meeting of the year on 10 January, the National Bank of Romania (NBR) raised the policy rate to 2.00% from 1.75%, marking the third successive hike, in line with market analysts’ expectations. Meanwhile, the Bank left the deposit facility rate stable at 1.00% but hiked the lending facility (Lombard) rate to 3.00% from 2.50%.

Elevated inflation largely underpinned the Central Bank’s decision to hike rates. The headline reading cooled slightly to 7.8% in November (October: 7.9%), as the recent cap on energy prices started to take effect, but still exceeded the Bank’s expectations. Against this backdrop of high energy costs, as well as persistent supply chain disruptions, the Bank forecasts inflation to continue its upward trend in the coming months. Meanwhile, economic growth slowed markedly in the third quarter of the year and the country’s recent Covid-19 outbreak has weighed on growth prospects for Q4.

Looking ahead, the Bank reiterated its commitment to bring inflation back to within 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 and uncertainty over 2021’s pending second budget revision and this year’s budget. Our panelists see several rate hikes this year, with the majority expecting a 50 basis-point increase in Q1.

With regard to the monetary policy outlook, Ciprian Dascalu, analyst at Erste Bank, said:

“We see another 100bp of rate hikes this year in steps of 25bp each, with the terminal rate for the cycle being reached at 3.00% by mid-2022. The risk balance to our call is clearly tilted to the upside, especially if RON depreciation pressures intensify on market fears that the Central Bank is falling behind the curve in its fight against inflation.”

The next monetary policy meeting is scheduled for 9 February 2022.

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