Romania's monetary relaxation at risk from global turmoil

The analysts' expectations for a new rate cut on August 7, when the National Bank of Romania (BNR) holds its next monetary board, moderated as the global turmoil deepened recently.

There is hardly any consensus on the next step BNR, which initiated the monetary easing cycle in July, would take on its August 7 board meeting.

The key risks regard Romania's need to finance its wide budget deficit, seen at 7% of GDP in 2024.

On the upside, the Romanian monetary authority will revise downward the disinflation trajectory, which is in line with the analysts' expectations.

"A possible flight of capital to safer markets could leave us exposed in the short term," Valentin Tătaru, chief economist of ING Bank, said in a discussion with HotNews.

In his opinion, the BNR will keep the monetary policy interest at 6.75% on August 7, but a 25 basis point (bp) "would not be at all surprising."

The chief economist of BCR Bank expects a key rate cut of 25bp to 6.50% but sees a 30% chance for no immediate change in the policy rate.

"Domestically, nothing fundamental has changed since the previous meeting that should stop the interest rate reduction cycle. Elsewhere in Europe, the markets are pricing in the interest rate cuts operated by the ECB and the Fed – which are now deeper compared to a month ago. The BNR's rate decision on August 7 will probably be pretty similar," Dascălu told HotNews. We see a 30% probability for a decision to maintain the interest rate because the fiscal policy presents significant risks for the disinflation process, Dascălu said.

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