OTP Bank Romania expects 8% year-end inflation and more rate hikes

The National Bank of Romania (BNR) will further increase the refinancing rate this year, and it will bring it above 2% during 2022 given that the headline inflation could hit 8% at the end of the year, according to experts of OTP Bank Romania quoted by Cursdeguvernare.ro.

The inflation rate at the end of the year could even reach 8% if a further increase in the price of energy for consumers is adopted, given the evolution of the international gas market. Most of this growth is not reflected in core inflation, as it is caused by higher energy prices.

But the strong economic recovery and decent wage growth generate a risk that the inflation expectations will rise, which could lead to an inflationary spiral, OTP Bank experts say.

"It is very important to place the BNR's decision in a regional perspective, in which other regional central banks have started to raise rates long before the Romanian central bank," say OTP Bank analysts.

The National Bank of Hungary has already increased its base rate by 120 bp to 1.8%. The Czech National Bank has already increased the base rate from 0.25% to 1.5% through two adjustments of 25 bp and 75 bp, respectively. And this is just the beginning because the market expects the Hungarian policy interest rate to reach 3.5% in 2 years, while the Czech policy interest rate could be raised to the 2.5-3% range.

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