February 7 (SeeNews) - Romania’s central bank is likely to maintain its key rate at 7% at its February 9 board meeting, after a dovish hike of 25 basis points in January, Austria’s Erste banking group said on Tuesday.
The main question hinges on whether Romania’s central bank will announce the end of the rate hiking cycle, echoing other central banks in the region, with the European Central Bank’s (ECB) and the U.S. Federal Reserve’s peak rates also in sight, Erste analysts said in a short note on Romania.
In the analysts’ view, broad monetary policy conditions are likely to remain unchanged after the January hike, which, coupled with a drop in commitment to tight liquidity management, led to an easing of monetary conditions thereafter. The key rate is likely to remain unchanged throughout 2023, Erste added.
Liquidity management is likely to be used in the following quarters, depending on the strength of the Romanian leu against the euro and upcoming inflation readings. Interest rates of the leu-denominated money market are therefore expected to trade within the central bank’s standing facilities corridor of 6% to 8% throughout 2023, according to analysts.
In an inflation forecast update published on Monday, Erste revised its forecast downwards from 8.7% to 8%, expecting core inflation to peak in January at 15.4% and end 2023 at 9.2%, remaining above headline inflation over the forecast horizon. Headline inflation is projected to decline to around 5.0% by the end of 2024, still above the central bank's 2.5% ±1 percentage point target range.
Romania’s consumer prices rose by 16.37% on the year in December, compared to an increase of 16.76% in November, latest data from the statistics office indicated.
On January 10, Romania's central bank decided to increase its monetary policy rate to 7.00% from 6.75%, in an attempt to anchor inflation expectations over the medium term and foster saving through higher bank rates.
(1 euro=4.9036 lei)