Romania: NBR slows the pace of hikes to 50 basis points in November
At its 8 November meeting, the National Bank of Romania (NBR) raised the policy rate to 6.75% from 6.25%. The decision marked the tenth consecutive hike. Concurrently, the Bank also raised other key rates: the lending facility (Lombard) rate to 7.75% (previously: 7.25%) and the deposit facility rate to 5.75% (previously: 5.25%). Meanwhile, the minimum reserve requirement was unchanged.
The Banks decision was again driven by a desire to tame inflation. The NBR expects inflation to peak towards end-2022, before gradually declining. Furthermore, the NBRs move came on top of its firm interbank liquidity management and amid its assessment of a “quasi-standstill of economic activity in 2022 Q3 and Q4”.
While there was no explicit forward guidance in the press release, the Banks hawkish tone relaxed slightly from the previous meeting, as it emphasized potential downward price pressures exerted by a fast-closing output gap. Nonetheless, further policy tightening is likely in the near term. The rate of inflation at home and the monetary policy stances of the Fed, the ECB and Romanias CEE peers, as well as the domestic and external economic outlook, are key factors to watch.
On the outlook, Nicolaie Alexandru-Chidesciuc from JPMorgan commented:
“We think that the bank [NBR] is on track to exceed 7% and may stop between 7% and 8%. Relative to our 7.75% forecast for end-23, we see upside risks and believe that rate cuts are highly unlikely even if a recession were to materialize (unless the recession is deep). We consider that inflation expectations have shifted and lowering inflation to the 2.5% target will be possible only with large and/or prolonged monetary tightening (i.e. real rates have to be positive for an extended period of time).”
The next monetary policy meeting is scheduled for 10 January 2023.