(Bloomberg) -- A global market meltdown added to risks for Romania’s central bank as it weighs whether slowing inflation merits lowering interest rates for a second consecutive meeting.
The National Bank of Romania may hold off on further monetary easing for now after the first cut in the base rate in three years in July, according to 12 of 20 economists in a Bloomberg survey. The rest expect another-quarter point reduction to the key rate, which at 6.75% is tied with Hungary’s for the highest in the European Union. The decision will be announced in Bucharest on Wednesday.
Most of the rate-cut forecasts were made before a worldwide market selloff on Monday. In Romania, inflation slowed to an annual 4.9% in June, the lowest level since 2021, widening the room for potential easing. At the same time, general and presidential elections later this year pose fiscal risks, with the EU forecasting a budget deficit as high as 7% of economic output.
“We find credible arguments for both keeping rates on hold and cutting for a second consecutive time,” said Valentin Tataru, a Bucharest-based economist at ING Bank, who sees rates on hold at this meeting and expects the next cut in November.
Poland, Hungary and the Czech Republic have been ahead of Romania in easing monetary policy, cutting rates several times over the past year. Hungarian rate-setters are targeting one or two more quarter-point cuts this year while the central bank in Warsaw may keep rates unchanged until 2026 because of lingering inflation concerns.
For Romania, price pressures may resurface next year if the government increases taxes to narrow the budget deficit and meet European Union commitments, according to business executives and economists. The central bank is expected to approve an updated inflation forecast on Wednesday.
“From a policymaking perspective, this type of economic cycle looks more consistent with acting on a window of opportunity in a data-dependent manner rather than engaging in a textbook easing cycle,” Tataru said.
--With assistance from Barbara Sladkowska.
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