RO central bank expected to tighten monetary policy rate by 50bp to 3%

The chief economists of several major Romanian banks, surveyed by Economica.net, expressed unanimous expectations for a 50bp rate hike at the monetary board meeting scheduled by the National Bank of Romania (BNR) on April 5.

Despite the gloomy growth outlook (EBRD expects 2.8% growth this year), the economists' expectations are justified as the headline inflation hit 8.5% YoY in February, and the CFA analysts polled the same month were expecting a 7.3% rise in consumer prices over the coming 12 months.

The 50bp hike on April 5 would be the first such wide step of the current interest rate normalisation cycle after more prudent 25bp hikes operated by BNR previously.

The impact on the money market rates and loan interest rates will be proportionally higher. ING Bank Romania's chief economist Valentin Tataru also expects "with a smaller but not negligible likelihood" to see a 25bp widening of the interest rate corridor decided by the central bank on April 5, Profit.ro reported. This, he continued, would equate to a 25bp top-up of the effective (binding) interest rate - namely the rate of the Lombard (overnight) financing facility made available by the monetary authority.

As opposed to the broad consensus over the BNR's next step on April 5, the views are more diverse when it comes to the medium-term: thus, the analysts surveyed expect the yearend monetary policy at between 3.5% (Ciprian Dascalu, BCR Erste) to 4% (Adrian Codirlasu, CFA Romania), 4.5% (Valentin Tataru, ING) and 5% (Ionut Dumitru, Raiffeisen Bank).

Dascalu (BCR) explains his forecast for more dovish monetary rates with expectations for lower headline inflation - as a result of the renewed 'cap and subsidy' scheme by the Government.

The central bank left the door open for such a scenario at the last monetary board meeting.

BCR's Dascalu expects the central bank to revise downward its inflation forecast - but he also expects the core inflation to stay above the target band of 2.5% +/-1pp for the coming two years.

(Photo: Valentinacata |