Erste expects taxation, depreciation to drive slightly higher inflation in Romania

Analysts of the Austrian financial group Erste have revised marginally upwards the expectations for the inflation trajectory in Romania to reflect the fiscal package and the currency depreciation following the weaker inflow of foreign currency to finance the sovereign debt.

Thus, Erste expects inflation in Romania to rebound to 8% y/y in January-February after 7.5% y/y at the end of this year, and they revised upwards to 5.3% y/y from 5% previously the projection for end-2024, Ziarul Financiar reported. For the end of 2025, the Austrian group expects inflation at 4.2% y/y, above the range targeted by the BNR of 2.5% +/-1pp.

The short-term inflation forecast is likely to be little affected by the new excise duties on sugary non-alcoholic drinks and the increase in the VAT rate from 5% to 9% on organic food. A complete and immediate transfer in final prices would lead to an impact of 0.1 percentage points on annual inflation.

Regarding the level of the monetary policy interest rate by the BNR, Erste analysts believe that at the meeting on November 8, the National Bank will not change the current rate of 7%.

"We expect the key interest rate to remain unchanged at least until May 2024, given the pressures on the labour market and the strong wage growth forecast over the next two years. The key interest rate of the NBR could drop to 5.75% by the end of 2024, compared to 7% currently," the report states.

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