RO: NBR key rate unchanged at 6.50%
In line with the broad market consensus, the NBR decided to keep the key rate unchanged at 6.50%. Higher than anticipated inflation, fiscal situation and prolonged external markets instability are the main concerns of the central bank. 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 annual inflation rate has been on a somewhat higher path compared to the latest NBR forecast with the latest print at 5.0% y/y in February. The declines in the dynamics of food, tobacco and fuel prices in the first two months of Q1 overall were largely offset by the step-up in the growth rates of energy prices and administered prices. The latest assessment of the central bank shows that inflation will fluctuate further in the first half of 2025 and remain on a higher path vs the current official projection. Uncertainties and risks are elevated due to the unpredictable nature of future energy and food prices, influenced by both relevant legislation and trade policies in developed economies. These policies could impact commodity prices and the cost of intermediate and finished goods globally.
Economic growth is seen slowing down in quarterly terms in 2025 Q1 by the NBR and with an annual growth rate relatively similar to the previous quarter.
The Romanian economy navigates a complex landscape characterized by moderating yet volatile inflation, resilient consumer spending, and persistent external uncertainties. The central bank's decision to hold steady reflects a commitment to price stability amidst a backdrop of evolving risks, particularly regarding energy and food prices, as well as global trade policies.
Market implications: neutral for RON and ROMGBs.