Romania hikes refinancing rate more than expected, by 75bp to 6.25%

Romania’s central bank (BNR) decided on October 5 to increase the refinancing rate by 75bp, to 6.25%, more quickly than the 50bp median of the expectations expressed by analysts in a recent Bloomberg survey. The interest rates corridor was upped accordingly, with the Lombard reaching 7.25%.

Some analysts, however, correctly anticipated the 75bp hike based on higher-than-expected inflation in August (when annual headline inflation returned above 15% YoY).

The adjusted CORE2 inflation rate went up to 11.2% YoY in August, from 10.4% YoY in July and 9.8% YoY in June, slightly above the forecast mainly because of the new rises in processed food prices.

According to current assessments of BNR, the annual inflation rate will probably stick to an upward path towards year-end, under the impact of supply-side shocks, yet at a visibly slower pace.

The near-term inflation outlook has worsened amid faster growth rates anticipated over the following months for the prices of natural gas and electricity – inter alia amid the changes made to the electricity price capping scheme – as well as for food prices.

The BNR Board decisions aim to anchor inflation expectations over the medium term, as well as to foster saving through higher bank rates, so as to bring back the annual inflation rate in line with the 2.5% +/-1pp target on a lasting basis in a manner conducive to achieving sustainable economic growth=m the monetary authority explosions in the note published along with the monetary policy decision.

(Photo source: LCVA/Dreamstime.com)