Romania’s BNR more hawkish than expected with 75bp rate hike, more to come

Romania’s BNR more hawkish than expected with 75bp rate hike, more to come
/ bne IntelliNews
By Iulian Ernst in Bucharest October 6, 2022

The National Bank of Romania (BNR) decided on October 5 to increase the refinancing rate by 75bp to 6.25%, more than the 50bp median of the expectations expressed by analysts in a recent Bloomberg survey. The interest rates corridor was upped accordingly with the Lombard reaching 7.25%.

“The near-term inflation outlook has worsened amid faster growth rates anticipated over the following months for the prices of natural gas and electricity — inter alia amid the changes made to the electricity price capping scheme — as well as for food prices,” the comment published along with the monetary policy decision reads.

The adjusted CORE2 inflation rate went up to 11.2% y/y in August, from 10.4% y/y in July and 9.8% y/y in June, slightly above the forecast mainly because of the new rises in processed food prices, the BNR argued its decision.

According to current assessments by the BNR, the annual inflation rate will probably stick to an upward path towards year-end, under the impact of supply-side shocks, yet at a visibly slower pace.

The BNR board decisions “aim to anchor inflation expectations over the medium term, as well as to foster saving through higher bank rates, so as to bring back the annual inflation rate in line with the 2.5% +/-1pp target on a lasting basis, in a manner conducive to achieving sustainable economic growth,” the monetary authority explained in the note published along with the monetary policy decision.

Still lagging behind its peers in the region, the BNR may bring the key monetary policy rate to 6.75% by the yearend, ING analysts wrote in a note. The BNR will further hike the policy rate in November, ING anticipates.

“While we still think that there is a high probability (say 30%) of only a 25bp hike in November, it looks more likely for the BNR’s usual sequential approach to prevail and take the key rate to 6.75% in November 2022 and 7.00% in January 2023,” the note reads.

Driven by renewed concerns about inflation and not so much about growth (a wave of upward revisions were just released by IFIs) and despite lending visibly losing steam, Romania’s central bank has changed its plans somewhat, ING analysts suggest.

“The National Bank of Romania now sees inflation inching higher rather than tanking some 1pp starting in October on base effects,” ING’s note reads.