The National Bank of Romania (BNR) will keep the key rate on hold at 6.5% at its last meeting of this year scheduled on 8 November, according to a research note published by Erste Group.

The decision would be based on the large fiscal slippage this year (recently confirmed by the government), still robust increase in real wages (above 8% y/y in August) and slower-than-expected decline in inflation rate.

The Austrian bank’s analysts said they expect the next rate cut in Q2 next year.

In its meeting of 4 October, the BNR board decided, “in light of the elevated uncertainty,” to keep the monetary policy rate (chart) at 6.50%, amid mixed expectations slightly skewed towards a 25 basis points (bp) cut.

The BNR cut the policy rate for the first time in July (-25bp), after it kept it at 7% since January 2023 to fight inflation that is expected at just over 4% y/y by the end of this year.

At the same time, Erste analysts revised upward their year-end inflation forecast to 4.5% y/y, from 4.0% y/y previously, amid some changes in the forecast assumptions related to energy prices (natural gas and oil prices, in particular), in line with the developments on the global markets. Romania’s central bank is also expected to revise upwards its projection (4% y/y at year-end and 3.4% y/y one year later), in November.

The forecast for the adjusted CORE2 inflation estimate by Erste Group for December was also revised to 5.1% y/y, compared to 4.9% y/y previously. 

“We stick to our view that core inflation should hover above the headline inflation over the entire forecast horizon,” Erste analysts also said.