RO revised economic outlook: higher rates and slower growth but stable currency

The Russian invasion in Ukraine prompted another major negative revision for Romania's economic outlook, after the disappointing Q4 performance (-0.5% mom) released on February 15.

Thus, ING Bank reduced to 2.3% from 3.2% previously the GDP projected for this year.

Earlier on February 15, the bank reduced the projection from 4.5% to 3.2% in response to the disappointing Q4 GDP figures.

"For Romania, the impact of the conflict should be mainly through the confidence channel," the bank's monthly report reads now.

Otherwise, the National Bank of Romania (BNR) seems very determined to maintain the EUR/RON rate close to 4.95, the Dutch bank's report reads.

Its analysts believe that only "some tectonic shift in the rest of CEE currencies "could result in a weaker currency in Romania.

The liquidity shortage in the market will provide a helping hand to the exchange rate while pushing up the interest rates, under the scenario envisaged.

Under the scenario, the inflationary pressures are moderated by the economy slowing beyond expectations.

The key rate level itself will thus matter less, but ING still expects hikes towards 4.00% this year, from 2.5% currently.

Ionut Dumitru, Raiffeisen Bank's chief economist, believes that inflation and war will raise key interest rates even more, to 4.25%.

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