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Romania Monetary Policy August 2023

Romania: NBR keeps policy rate unchanged in August

At its 7 August meeting, the National Bank of Romania (NBR) left the policy rate unchanged at 7.00%. Additionally, the Bank left the deposit facility and the lending facility (Lombard) rates unchanged at 6.00% and 8.00%, respectively. The minimum reserve requirement was also left unchanged.

The NBR’s decision followed Q1’s subdued growth and the deceleration of inflation in Q2 versus Q1. Moreover, the NBR’s expectation of slower-than-previously-anticipated growth in Q2 and Q3, coupled with risks stemming from the upcoming budget consolidation reform and additional spillovers of the war in Ukraine, likely contributed to the Bank’s decision to hold fire.

While the NBR provided no explicit forward guidance, the Bank increased its projections for inflation in December 2023 and December 2024. However, it continues to see inflation falling to near the 1.5–3.5% target band by June 2025—the end of the Bank’s projection horizon. Thus, despite the sticky core inflation that prevailed through Q2, any further tightening is unlikely. Our panelists expect the first rate cut in Q1 2024.

The next monetary policy meeting is scheduled for 5 October.

On the outlook, Valentin Tataru, chief economist for Romania at ING, commented:

“The [NBR’s] reference to the “somewhat higher-than-previously-anticipated path only in the medium segment of the projection horizon” is worth paying attention to and should normally be a hawkish sign. However, we believe that this is fully offset by the slower-than-expected GDP growth […]. We maintain our view of a first rate cut in the first quarter of 2024.”

Meanwhile, Ciprian Dascalu, chief economist of Erste Group’s BCR, commented:

“Assuming no meaningful deviation from the NBR inflation outlook, we see the key rate unchanged until mid-2024, given the tight labor market and strong real wage growth expected over the next couple of years. The risk to our call comes from the NBR benchmarking itself vs. the Polish central bank, though it is likely to lag [behind] it at least by a couple of quarters in cutting rates.”

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