RO: NBR preview: in ‘on hold’ mode waiting for fiscal clarity

The NBR rate decision on 8 November is widely viewed as a non-event, with most of contributors to the Bloomberg survey, including us, expecting no change. The NBR already signalled in the press release following the 4 October meeting an upward revision in the inflation forecast in the Inflation Report due after 8 November. The central bank paused removing policy restrictiveness at the previous meeting after two consecutive rate cuts, mainly due to concerns over fiscal slippage. Meanwhile, given the updated gross financing needs plan, the government is likely targeting a wider budget deficit by about 1pp of GDP. Two Board members called for prudence recently, backing on-hold stance.

We see the next NBR rate cut in the second quarter of 2025, though the interest rate outlook is a function of the structure, timing, and size of the widely expected fiscal consolidation package, which should be presented by the new government after the general and presidential elections. Provided that the structure of the fiscal adjustment weakens the domestic demand pressures, there could be room for the NBR to cut rates in the first quarter. However, some of the fiscal measures are likely to have a short-term inflationary impact. We see inflation ending this year at 4.5% y/y and 2025 at 3.7% y/y with core inflation remaining above the headline throughout the eight-quarters policy horizon.

This is the first rate-setting meeting of the current NBR Board which started the mandate on 11 October with five out of nine members from the previous Board reconfirmed for a new term by the Parliament, ensuring continuity. Fiscal concerns are likely to dominate the debate within the Board meeting. The NBR is likely to reiterate data-dependency, maintaining a significant buffer of policy restrictiveness to offset the over-expansionary fiscal policy.

Risks for a rate cut are rather marginal in our view. Below-forecast economic growth and market expectations for faster rate cuts by the ECB and some regional central banks could be arguments for the doves. These are unlikely to outweigh the upward revision in inflation outlook and ongoing fiscal concerns in the decision-making process.

Market implications: neutral for RON and ROMGBs.