Romanian c-bank likely to hold key rate at 7% - Erste

The key rate is expected to remain unchanged until the central bank’s board meeting in May, before easing to 5.75% by the end of the year, Erste analysts said in a short note on Romania on Wednesday.

At its forthcoming board meeting, the central bank, BNR, is expected to suggest an upcoming downward revision of its November medium-term inflation forecast, despite short-term inflationary risks spurred by fiscal measures and the external backdrop, according to Erste analysts. To avoid policy inconsistency, the BNR governor ruled out rate cuts until inflation declines significantly and the disinflation process is irreversible, Erste added.

The latest central bank forecast projects inflation dropping below the key rate level of 7% in the second quarter of this year, reaching 6.8% by the end of the second quarter.

Despite inflation falling to 6.7% in November, the expected increase in the first quarter and delayed fiscal consolidation are likely to stall rate cut talks until BNR's meeting in May, according to Erste analysts.

In November, BNR decided to keep its monetary policy unchanged at 7% for the seventh time since January 2023 in an attempt to bring inflation back to its target of 2.5% plus/minus 1 percentage point on a lasting basis.

Erste's shares traded 0.05% lower at 189.55 lei ($41.7/38.1 euro) as at 1037 CET on January 11 on the Bucharest Stock Exchange.

1 euro=4.9724 lei