Central bank raises reference interest rate
National Bank of Romania again raises monetary policy interest rate trying to keep price hikes in check.
Mihai Pelin, 06.10.2022, 14:00
The National Bank of Romania raised the key interest rate to 6.25%, which is above market expectations and the highest level in the last 12 years. The central bank is thus trying to tackle inflation. As a consequence, interbank rates based on which the rates of loans in lei with variable interest rates are calculated, will see an increase in the coming period, says the vicepresident of the Association of Investment Professionals in Romania, financial analyst Adrian Codirlaşu:
“The National Bank of Romania is expecting the inflation to continue to rise and that is why it has raised the interest rate by 75 basis points, which is more than the market expected. The result will be that interest rates will continue to go up on the monetary market, namely ROBID and ROBOR. At the same time, the central bank is expecting a strong slowdown of economic growth. This means that there is a risk of technical recession in Romania in the coming period, so perhaps we will see GDP drop in some quarters compared with the previous quarter.”
National Bank experts say the most recent data suggest a strong slowdown of economic growth in the third quarter compared with the previous one. Despite this, a significant increase in the annual dynamic of GDP will be recorded in this period at a time when private consumption is decreasing. Financial analyst Adrian Codirlaşu explains:
“The National Bank of Romania is expecting a lower pace of economic growth, so we will still have economic growth, but it will be much lower that the initial estimates. The bank will next meet in November and well probably see a new increase then by 25-50 basis points. By the end of the year, the monetary policy interest rate will probably reach 6.50 or 6.75.”
According to central bank experts, the annual inflation rate will probably continue to grow towards the end of the year, but at a slower pace, as a result of higher prices for natural gas and electricity, as well as food, amid the war in Ukraine and the prolonged drought seen by Europe this summer. The escalation of the war and the increasingly severe sanctions against Russia generate uncertainty and considerable risks to the prospects of the economy and, implicitly, the medium-term evolution of the inflation rate, the banks experts also say. They add that in the current context, a balanced combination of macroeconomic policies and structural reforms, including European funds, are essential for maintaining macroeconomic stability and consolidating the capacity of the Romanian economy to cope with unfavourable developments. (CM)
