RO: NBR Preview: ‘on hold’ for longer

The NBR is widely seen keeping interest rates unchanged at the 14 February meeting. We expect NBR to resume cutting rates in August and deliver three key rate cuts of 25bp each to 5.75% by end-2025, with risk for less cuts subject to fiscal and political developments.

The NBR is due to present the updated inflation forecast which should see an upward revision in near-term headline inflation profile with more persistent core inflation outlook. We are currently forecasting CPI at 3.7% y/y by year-end and core inflation at 4.0% y/y.

Weaker growth numbers and market expectations for the ECB rate path could be arguments for the doves. In the decision-making process, these dovish calls are likely to be outweighed by fiscal concerns, increased FX vulnerability due to elevated risk premia and sovereign rating risks, as well as high and mostly upside inflation forecast uncertainties.

Market implications: neutral for RON and ROMGBs.