Report2 August 2018Updated 5 months ago

Romania: Central bank won’t budge on rates, yet

We predict that the National Bank of Romania will keep interest rates on hold at its next meeting on 6 August, rather than raise rates as the consensus predicts. Read our full report to find out why  

Executive summary

The Bloomberg consensus is for Romania's central bank to hike rates from a current level of 2.5%, at its meeting on Monday. We disagree with this view for the following reasons: 

  1.  The policy stance has already tightened due to a higher ROBOR (Romanian Interbank Offer Rate) and a stronger Romanian leu 
  2.  The Bank expects a narrower revision to the output gap implying a subsequent shift lower in the outlook for core inflation
  3. The dovish NBR Board likely needs more time to assess mixed-to-weaker soft data
  4. More details are needed on the upcoming budget revisions 
  5. There is no sign of a credit-driven asset price bubble.

We attach a 20% probability to a 25 basis point hike, as policymakers could be minded to factor in the consensus view.