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Romania Monetary Policy February 2024

Romania: NBR keeps policy rate unchanged in February

At its 13 February 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 a faster-than-expected drop in inflation in Q4 2023. It eschewed cutting rates because activity cooled less than anticipated in the third quarter, suggesting that there is still excess aggregate demand in the economy. Looking ahead, the Bank expects inflation to pick up at the onset of 2024 due to an increase in indirect taxation. According to the Bank, inflation should then resume its downtrend amid a strong base effect, lower excess demand and declining import prices. That said, the NBR reiterated that it sees upside risks to the 2024 inflation outlook stemming from uncertainty surrounding the future budgetary stance, new pensions legislation and wage dynamics in the public sector.

The NBR provided no explicit forward guidance, merely reiterating that it would monitor “developments in the domestic and international environment and would continue to use the tools at its disposal to achieve the fundamental objective of price stability in the medium term”. Our panelists expect the first rate cut in H1 2024.

The next monetary policy meeting is scheduled for 4 April.

Commenting on the outlook, Stefan Posea and Valentin Tataru, economists at ING, stated:

“We narrowly hold on to our view that rate cuts will start in May and that the key rate will reach 5.50% by the year-end, though we give a material probability for the rate-cutting cycle to start earlier (in April) and/or stop at a higher point (6.00%), given that the ultra-loose liquidity conditions are not likely to change throughout 2024, thus diminishing the need for conventional easing.”

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