(Bloomberg) -- Romania’s central bank may start laying the groundwork for cutting interest rates in the coming months as a spike in inflation at the start of the year is likely to prove fleeting.
Investors will be looking for clues about the timing of the first reduction when the National Bank of Romania releases its rate decision on Tuesday. It’s widely expected to keep the benchmark rate at 7% for a ninth straight meeting.
“The dovish tone of the statement may indicate an earlier rate cut than we currently expect, i.e. April,” said Juraj Kotian, a Vienna-based economist at Erste Group Bank AG.
Board member Cristian Popa said in January that the central bank needs two to three months before it starts talking about rate cuts because of the fiscal changes at the start of the year.
Inflation, which probably spiked in January as higher taxes kicked in, has declined below the benchmark rate in recent months. The central bank will release its updated inflation outlook on Thursday. The last projection showed it will slow to 4.8% toward the end of 2024, but stay above the bank’s target range until at least 2025.
Romania has been slower to cut interest rates compared with peers in the European Union’s east. Poland, Hungary and the Czech Republic already started lowering borrowing costs last year, although the central bank governor in Warsaw now says rates will stay unchanged until the end of 2024.
Romania’s government is struggling to contain a budget deficit, which is forecast to reach 5% of economic output this year. The country also faces four rounds of elections and growing demands for higher wages and pensions.
The economy probably managed to avoid a recession last year as the inflows of EU funds helped accelerate long-delayed infrastructure investments. Growth may pick up to about 3% as slower inflation helps boost consumption.
--With assistance from Joel Rinneby.
©2024 Bloomberg L.P.
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