Romanian bank BCR expects further rate hikes and stronger reliance on liquidity control

Romanian bank BCR, part of Erste Bank Group, expects the National Bank of Romania (BNR) to hike the refinancing rate again by 25bp (to 2%) in its next board meeting in January, when the monetary authority will further widen the interest rate corridor by 25bp to 1pp.

The core inflation edged up by 0.4pp to 4% in October, while the headline inflation moved up to 7.94% - way above the 7.09% Bloomberg consensus and 7.24% BCR’s projection, the report issued by the Romanian bank reads, according to Bursa.ro.

BNR hiked the monetary policy by 25bp one day before the October inflation release, in a move seen as milder than needed - but it also widened the interest rate corridor with the effect of Lombard rate reaching 2.5% (from 2% previously).

The central bank is rebalancing the mix of policies towards a stronger reliance on liquidity control in addition to the central instrument of the interest rates, the bank’s analysts explain the purpose of the wider interest rate corridor.

Further rate hikes will be operated in parallel, though, in steps of 25bp each, until the refinancing rate reaches 3% at mid-2022 - under the scenario sketched by BCR bank. The steps will, however, depend on the policy followed by regional central banks, particularly the Polish central bank - as the Romanian monetary authorities must maintain certain differential, it added.

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