Central Bank of Romania to step up rate hikes to tame prices

Central Bank of Romania to step up rate hikes to tame prices

Romanian policy makers may be forced to reconsider their reluctance to pursue faster rate increases in the face of an extended spike in energy prices feeding inflationary pressures.

Romania’s central bank will likely raise getting expenses to tame decade-high inflation and find its companions in the region that have adopted a more aggressive approach in tightening monetary policy. Interest-rate setters in Bucharest are probably going to move forward the speed of tightening, increasing the benchmark rate by 50 premise focuses to 2.25%, as per six of 11 market analysts reviewed by Bloomberg. The other five anticipated an ascent to 2%.

Only a few months ago, the nation had the highest interest rate in the 27-member European Union — but is now lagging behind other eastern European states outside the euro area after hiking twice by only 25 basis points in its last two meetings.

“The central bank has, so far, remained less aggressive with its hiking cycle, which probably stems from the lagging labor market recovery, as compared to its peers, and the fiscal trajectory pertaining to the political uncertainty,” Raffaella Tenconi, a London-based economist at Wood & Company, wrote in a note to clients. “Nonetheless, we expect the bank to pick up its pace over the coming months, starting with a 50 basis points hike this month.”

Tenconi estimates the key rate will rise to 4% by the end of this year and to 4.5% by the end of 2023.

The central bank doesn’t expect inflation to return to its targeted band until late 2023, with price growth topping 5% at the end of this year. Consumer prices were 7.8% higher from a year earlier in November.

On the other hand, economic growth is forecast to be among the continent’s quickest, though the new wave of the Covid-19 pandemic and restrictions imposed to try to limit the spread of the virus may damp consumer demand.

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