Analysts surveyed by Economica.net said they expect an interest rate hike at the monetary board meeting of the National Bank of Romania (BNR) on January 10, possibly of 50bp to 2.25%, and also possibly accompanied by further widening of the interest rate corridor that would push up further the Lombard interest rate.

The rate hike in Poland earlier this week encouraged expectations for a similar move in Bucharest, where the BNR has been more cautious in the process of interest rate normalisation despite quite a similar inflation profile shared with Poland.

In its latest move on November 9, the BNR increased the refinancing rate by 25bp to 1.75%, against consensus expectations for a steeper tightening of the monetary stance.

It also widened the symmetric interest rates corridor, consequently rising the Lombard rate by 50bp to 2.5%, which is likely to have a visible impact on the money market rates.

In the meantime, however, the inflation outlook further deteriorated.

The average consumer prices in Romania rose by 1.8% in October alone, pushed up by higher energy prices, while the annual inflation rate reached 7.9% y/y — a significant 1.6pp advance from 6.3% in September and more importantly above the consensus expectations.

“We expect the National Bank of Romania to increase the key interest rate from 1.75% to 2.25%. We also anticipate the widening of the corridor formed by the interest rates of permanent facilities around the monetary policy interest rate to +/- 1.00 pp, from +/- 0.75 pp now," said Valentin Tataru, chief economist of ING Bank, quoted by Economica.net. 

Adrian Codarlasu, vice president of the CFA Romania Association, argued that Poland hiking the rate by 50bp this week to 2.25% sets grounds for an increase in Romania's monetary policy interest rate by 0.5bp as well, compared to the association’s initial expectations for a 0.25bp hike.

He also warned that headline inflation may hit 10% y/y in May-June, judging from the factory-gate inflation of 32% in November.

Ionut Dumitru, Raiffeisen Bank's chief economist, pointed out that Raiffeisen Bank's forecast envisages a policy interest rate of up to 2.5% by mid-2022 and 3% by the end of 2022.

"We expect the BNR to catch up with colleagues in Central and Eastern Europe and offer a key rate hike of 50bp to 2.25% at the next January 10 interest rate meeting,” he told economica.net. 

The excess liquidity after high public spending at the end of the year should support such a decision.