Romania’s central bank expected to keep monetary policy unchanged amid rising risks

Romania’s central bank (BNR) is expected to keep its key interest rate unchanged at its November 8 policy meeting amid mounting fiscal concerns and inflationary risks, marking the final rate-setting session for 2024.

Ciprian Dascălu, the chief economist at BCR, noted that although the BNR cut rates twice in previous meetings, it is unlikely to pursue further reductions this year, given rising fiscal pressures.

“The monetary policy decision on November 8 is largely seen as a non-event, with most respondents in a Bloomberg survey, including us, expecting no change,” said Dascălu, quoted by Economica.net.

Dascălu predicts that the BNR will delay rate cuts until Q2 2025, contingent on the government’s forthcoming fiscal consolidation package expected after the general and presidential elections.

“The timing and impact of the fiscal measures will be crucial; if these adjustments reduce domestic demand, a rate cut could come as early as Q1. However, short-term inflationary effects from fiscal adjustments are likely,” he added.

In October, the BNR signaled a likely upward revision of inflation in its next report, scheduled for release after the November meeting.

The central bank paused its easing cycle last month, citing concerns over fiscal slippage and noting that inflation risks now appear more persistent. Romania’s fiscal deficit, expected to reach 7.9% of GDP in 2024, adds to the central bank’s cautious stance. Recent fiscal projections reveal the government is targeting an even wider deficit of approximately 1pp of GDP, sparking further caution among monetary policymakers.

Two board members recently advocated for holding rates steady, citing the importance of prudent management in light of fiscal risks.

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