September 9 (SeeNews) - Romania’s central bank, BNR, is likely to increase its key interest rate twice to 2.25% next year, precedeed by two hikes in the deposit facility, analysts said on Friday.
"We previously expected two 25 basis points (bp) narrowing moves of the standing facilities corridor followed by another four 25bp key rate hikes. However, this would have meant relatively aggressive tightening within a short time span. Given time constraints, we now expect two hikes in the deposit facility in the first half of 2017 followed by two hikes in the key rate in the second half," ING analysts said in their MonitorING Romania report.
"We feel the BNR is likely to wait for inflation to pick up before acting," they added.
The analysts maintain their call for the first 25bp corridor narrowing at the BNR's monetary meeting in February.
Likely fiscal consolidation, better policy transmission and tighter regulation could also be arguments for less aggressive policy firming, the analysts added.
ING analysts recently revised their fiscal year 2016 growth forecast for Romania from 4.2% to 5.2%, following a better than-expected first half of the year, based on strong domestic demand and investment momentum.
At its last monetary meeting in August, BNR maintained its monetary policy rate at a record low of 1.75%. The central bank last changed the rate in May 2015, cutting it by 25 basis points.
Romania's annual consumer price deflation accelerated to 0.8% in July from 0.7% in June, according to data from the country's statistics office, INS.
At the beginning of August, BNR said that it expected annual inflation to remain in negative territory longer than previously expected, until the end of 2016. In its previous forecast in May, the central bank said it expected deflation to persist until July, a month later than previously forecast.
BNR now expects Romania to post end-year deflation of 0.4% for 2016, before turning to inflation of 2% at end-2017. The bank's previous estimates were for end-year inflation of 0.6% in 2016 and 2.7% in 2017.
Romania's annual inflation rate turned negative last June under the impact of broadening the scope of the 9% reduced VAT rate to all food items, non-alcoholic beverages and food service activities.
Romania has reported end-year deflation of 0.9% for 2015.