Romania's central bank may announce 100bp rate hike on May 10

Romania's monetary authority may hike the policy rate by 100bp to 4% in a bold step towards addressing rising inflation, chief economists of several local banks believe.

Romania's National Bank (BNR) holds its monetary board meeting on May 10, after the central banks of Poland and the Czech Republic announced similar steps, of a smaller magnitude (75bp each) but from a higher base.

Thus, Poland's monetary policy council raised its policy rates by 75bp to 5.25% on May 5. On the same day, the Czech National Bank raised the key interest rate by 75bp to 5.75% - the highest level since 1999.

"We expect the BNR to increase the key policy rate by 100bp to 4.00% at the May 10 meeting. The credit facility rate, which should remain the relevant operational policy instrument under a strict liquidity management policy, should reach 5.00%. We see a level of 5.50% for the key rate and 6.50% for the credit facility by the end of this year," Ciprian Dascălu, chief economist of BCR, said, quoted by Economica.net.

Valentin Tătaru, the chief economist of ING Bank, also estimates an increase of 100bp to 4.00% while stressing that even so the rate in Romania will continue to be lower compared to those in Poland, Hungary and the Czech Republic. "In the choice of growth versus inflation, BNR seems to continue to lean towards the first," Tataru says.

At its May 10 meeting, BNR will approve the latest Inflation Report, which should see the revised inflation forecasts above for general inflation and suddenly higher for core inflation.

ING Bank estimates the average inflation in 2022 at 10.7% and at the end of the year at 9.9%. "For 2023, we maintain our consensus forecast of an average inflation of 6.1% because the external context could become more favourable, given the risks of a recession looming in the euro area," Tataru says.

Ciprian Dascălu sees "inflation at 11.5% at the end of the year, after reaching a peak around 12.0% in June, with core inflation converging to its maximum level by the end of the year. Inflation is likely to be sticky, and we see both the core CPI and the general CPI hovering around 7% by the end of 2023 and falling right into the BNR's target range by the end of 2024."

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