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March 5, 2024
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Economy Finance Romanian News

Economists: Romania’s National Bank Could Raise Key Interest Rate to 3%

Romania’s National Bank could raise key interest to 3% due to the high inflation. According to economists cited by ZF.ro, this could be the new immediate target of the National Bank, while the medium-term target could be even higher.

The high inflation rate, reaching in February 2022 an annual rate of 8.53%, could prompt the National Bank of Romania to hike key interest rates by 0.50 percentage points, or up to 3% in April, as it did in February. In 2022, forecasts suggest a key interest rate of 3.5% to 4.5%.

We expect the NBR to increase the key interest rate to 3%. We see two more increases in the key rate, of 25 bp each, to 3.5% in the middle of the year, with the credit facility, which should remain the relevant operational instrument under the firm liquidity control policy, reaching 4,5% .

Ciprian Dascalu, chief economist of BCR

Expectations of continuing inflation could prompt the NBR to raise the primary rate by 0.50 percentage points (pp) to 3%, as some analysts predict, at its monetary policy meeting. However, given the economy’s slowing to 3%, a rise in the critical rate of only 0.25 percentage points, together with an extension of the symmetrical corridor around the key rate from 100 to 125 basis points, could be considered. (1.25 pp).

After depending on the previous three monetary policy meetings in gradual stages, opting for interest rate rises of 0 percentage points, the NBR lifted its rate and key interest rates by 0.5 percentage points to 2.5% in February. The NBR predicted double-digit inflation in the second quarter, owing to increasing gas and electricity prices.

With this supposed inflation rise, the National Bank of Romania announced that Romania’s international reserves drop 4% in March 2022. Therefore with high inflation, an ongoing crisis and lower international reserves, Romania will have to implement an urgent plan to boost the economy. Besides, Romania is one of the four countries at risk of a currency crisis, as Nomura Bank warned in November 2021.

Considering the foreign investors are less than in the previous years, Romania could face a more significant crisis than other countries in the region if the economic and financial management aren’t carefully implemented.

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