Romania Holds Rates as Elections Boost Fiscal Risks to Inflation
(Bloomberg) -- Romania’s central bank held borrowing costs steady for a second meeting as policymakers opted to take more time to assess fiscal risks stemming from presidential and parliamentary elections due by the end of the year.
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The National Bank of Romania left the benchmark rate at 6.5%, matching the estimates of 15 out of 17 economists in a Bloomberg survey. Two analysts expected a quarter-point reduction.
“Significant uncertainties and risks stem from the future fiscal and income policy stance,” the bank said in a statement Friday. Inflation is set to climb by the end of the year, it said, citing commodity price increases spurred by “severe” drought this year.
Inflation in the Black Sea nation slowed to the lowest level in three years in September and the central bank expects price growth to re-enter its target band of between 1.5% to 3.5% next year. But the outlook for 2025 remains clouded by a budget deficit likely to exceed 7% of economic output this year, raising the prospect of tax increases the elections.
“The Romanian economy walks on a tightrope with its twin deficit situation, needing to prevent capital outflows and keep the budget financing sound,” said Stefan Posea, a Bucharest-based economist at ING Bank. “This means that rates could remain higher than the growth dynamics would imply.”
This is the first decision under a new central bank board whose mandate started in October. Five out of nine of the members, including Governor Mugur Isarescu, kept their mandates to ensure continuity.
Officials also discussed and approved an updated inflation report which will be presented by Isarescu on Monday.
Economic growth is expected to slow to less than 2% this year, according to analysts, as industry remains significantly affected by sluggish demand in western European economies.
--With assistance from Barbara Sladkowska.
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