Analysts expect Romania's fiscal package to delay monetary policy easing cycle

The National Bank of Romania will maintain the key rate at 7% longer than initially expected after the government promoted the fiscal package, and this may have a material impact on economic growth, according to analysts surveyed by Profit.ro.

"We expect the interest rate cuts to come mainly in the second half of 2024 if Romania's budget deficit decreases enough for the country to avoid a conflict with the European Commission. A similar message was sent by the governor of the National Bank of Romania, Mugur Isărescu," Dan Bucșa, Chief Economist for Central and Eastern Europe at UniCredit London, said in a research note.

ING Bank chief economist Valentin Tataru said the first rate cuts may come sooner (in Q1 next year) – but in case the disinflation is slower than expected by the central bank, then the rate cuts will be delayed with a negative impact on growth.

"If disinflation trends disappoint, then the likelihood that rates will remain higher for longer increases significantly. If this scenario materializes next year and the BNR does not cut the monetary policy interest rate, then by mid-2024, we will have two years with the highest level of interbank rates since the global financial crisis. Thus, the pressure on aggregate demand could affect GDP growth beyond what we estimate now," Tataru said.

ING revised its 2023 growth forecast from 2.5% to 1.5% based on a slightly disappointing first half of the year and limited prospects for an acceleration in the second part. The bank's analysts also cut its forecast for 2024 from 3.7% to 2.8%.

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