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Romania Monetary Policy January 2024

Romania: NBR keeps policy rate unchanged in January

At its 12 January 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 deceleration of inflation in the first two months of Q4 2023. The NBR eschewed cutting rates as activity cooled less than anticipated in the third quarter, suggesting resilient domestic demand. Looking ahead, the Bank expects inflation to pick up in January and then resume its downtrend amid favorable supply-side factors and declining import prices. That said, the NBR reiterated that it sees upside risks to the 2024 inflation outlook stemming from uncertainty surrounding fresh government spending, new pensions legislation, and wage dynamics in the public sector. As for the economic outlook, the NBR noted risks stemming from a subdued European economy, EU fund disbursements, and spillovers from the wars in Ukraine and the Middle East.

The NBR provided no explicit forward guidance; it only stated that the Bank would monitor “developments in the domestic and international environment and will 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 13 February.

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

“We expect the first dovish hints at the 13 February meeting, when a new inflation report will also be published. […] We also expect the Bank to lower its inflation profile. We also think that the dovish hints to come will be, at least partially, counterbalanced by the caution against the strong annual wage increases which are likely to persist this year. We foresee the first rate cut in May, although April is equally likely if firms choose a more cautious pricing strategy in early 2024.”

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