Romania: NBR slows the pace of hikes to 25 basis points in January
At its 10 January meeting, the National Bank of Romania (NBR) raised the policy rate to 7.00% from 6.75%. The decision marked the eleventh consecutive hike. Concurrently, the Bank also raised other key rates: the lending facility (Lombard) rate to 8.00% (previously: 7.75%) and the deposit facility rate to 6.00% (previously: 5.75%). Meanwhile, the minimum reserve requirement was unchanged. Additionally, the Bank removed its usual “firm control over money market liquidity” phrase from the press release given a recent shift from deficit to surplus liquidity in money markets and the Banks tolerance for such liquidity.
The Banks decision to hike was driven by a desire to tame price pressures, as both headline and core inflation ended last year at higher levels than the NBR expected. Moreover, the economy beat the Banks forecasts in Q3, with the monetary authorities highlighting the risk of increasing excess demand ahead.
While there was no explicit forward guidance, the Bank anticipates a return to single-digit inflation quicker than previously estimated due to government price-capping and compensation schemes, which should reduce the need for further tightening. On average, our panelists expect the NBRs policy rate to fall marginally by the end of 2023. That said, opinions vary considerably.
On the outlook, Nicolaie Alexandru-Chidesciuc from JPMorgan commented:
“If NBR decides to stop here, it might be easily accepted in the market. However, looking at our inflation forecast, we think any halt can only be a pause that will be followed by rate hikes.”
Meanwhile, INGs Valentin Tataru is more dovish:
“With todays decision, we see little scope for more hikes this year. If needed, the NBR will probably make good use of its already deep know-how in managing the interbank liquidity, in order to achieve its objectives.”
The next monetary policy meeting is scheduled for 9 February 2023.