Romania: National Bank of Romania cuts rates in August
At its meeting on 7 August, the National Bank of Romania (NBR) decided to cut its three main interest rates by 25 basis points, bringing the monetary policy rate to 6.50%, the lending (Lombard) facility rate to 7.50% and the deposit facility rate to 5.50%. The move surprised most market analysts and marked the second consecutive rate cut.
The cut was primarily driven by a continued decline in inflation, which fell to 4.9% in June from 5.1% in May thanks to a decrease in core inflation and fuel prices. The NBR also updated its inflation forecasts, expecting a faster than previously forecast decline in price pressures despite continued upside risks. Additionally, slower-than-expected economic activity in the first quarter of 2024 further supported the NBR’s policy decision.
The NBR did not provide specific forward guidance on the future direction of interest rates. That said, it emphasized its commitment to achieve medium-term price stability, while safeguarding financial stability and supporting economic activity. Most of our panelists anticipate the Bank will reduce rates further by year-end; our Consensus is for the monetary policy rate to be reduced by around 25 basis points. The next policy meeting is scheduled for 4 October.
Commenting on the release, ING’s Valentin Tataru and Stefan Posea stated:
“There seems to be more work to be done to moderate internal demand pressures, especially when we look at credit activity, retail sales and wage growth. The two recent consecutive cuts are not helping in this direction and might require stricter policy restrictiveness in the medium term.”