RO central bank squeezed between Govt.'s wishes and market's expectations

Romania's acting prime minister Florin Citu on October 14 expressed concerns about the central bank's possibly tardive attempts to address inflationary pressures, with a negative impact on growth in statements seen by some as criticizing the monetary authority's policies.

"I hope we [BNR] did not miss a measure in the past, and now we are in a hurry to reduce prices through restrictive measures that would jeopardize economic growth," the prime minister said, Hotnews.ro reported.

The National Bank of Romania (BNR) on October 5 hiked the refinancing rate by 25bp to 1.5%, initiating the interest rate normalization cycle sooner than expected - as a result of a sharp rise in energy prices and political turmoil.

Analysts expect more (four, probably) similar steps over the past year, with the next rate hike seen in November.

BNR should increase the monetary policy interest rate four more times by 0.25 pp peach time], to 2.5%, in order to obtain an effect on the economy, said on October 14 Adrian Codirlaşu, vice president of the CFA Romania Association, quoted by Agerpres.

His recommendations coincide with the expectations of the bank analysts. Indeed, "one can't fight energy prices with monetary instruments," as put by Raiffeisen Bank's chief economist Ionut Dumitru, quoted by Ziarul Financiar, but the rate hikes expected by analysts are aimed at depressing the inflationary expectations.

Furthermore, the annual adjusted CORE2 inflation rate went up from 2.9% in June to 3.0% in July and 3.2% in August, according to the central bank.

This was more than half the headline inflation (5.3% YoY in August) that further accelerated in September to 6.3%.

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