RO: NBR Holds Key Rate at 6.50%

Instant Comment , 14. Feb
NBR Inflation Outlook Revised Higher

At its February 14 meeting, NBR maintained its key policy rate at 6.50%, with Lombard rate at 7.50% and the deposit rate at 5.50%. As mentioned in the press release, new NBR inflation outlook will be revised higher in the short run. The new figures along with the quarterly Inflation Report will be published on Monday.

We expect NBR to resume cutting rates in August and deliver three key rate cuts of 25bp each bringing the key rate to 5.75% by the end of 2025, with the risk for less cuts subject to fiscal and political developments. The next policy meeting is scheduled for April 7, 2025.

Inflation exceeded NBRs expectations at the end of 2024 with headline CPI at 5.1% y/y vs 4.9% as shown in the current NBR forecast. January CPI came at 5.0% y/y with core inflation at 5.1% y/y. We are currently forecasting CPI at 3.7% y/y by year-end and core inflation at 4.0% y/y and we believe that on Monday the NBR will present similar figures. NBR now expects headline CPI to remain above the target band in 2025.

Weaker growth numbers and market expectations for the ECB rate path could be arguments for the doves at the next meetings. 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.