BCR expects Romania's central bank to bring refinancing rate to 3.5% by mid-year

Faced with inflation likely to reach 12.5% by the end of the year, 1.3pp higher than its own projection, Romania's central bank (BNR) will raise the refinancing rate by 50bp to 3.0% in its next monetary board meeting on April 9 and by another 50bp to 3.5% until the mid of the year, according to a research note of BCR Bank's chief economist Ciprian Dascalu.

February inflation (8.53% YoY) came short of the Bloomberg survey (9%) and BCR's forecast (9.07%) mainly because of the regulated energy prices, he admitted.

The Government aims to maintain for another 12 months the 'cap and subsidy' scheme introduced for the first time in November with the aim of helping households cope with the rising energy prices.

"Underlying inflationary pressures have remained surprisingly strong. We see core inflation peaking below 7.0% in the third quarter (Q3) of 2022," Dascalu explained, according to Wall-street.ro.

"We see that the BNR will raise the key interest rate to 3.50% by the middle of the year and the credit facility, which should remain the relevant operational instrument within the firm liquidity control management policy, reaching 4.50%. We expect the central bank to maintain strict currency management to limit pressure and anchor inflationary expectations," he also said.

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