Investing.com -- The National Bank of Romania (NBR) decided to maintain its policy rate at 6.50% today, citing the uncertain political environment and recent strain on the Romanian leu as key influencing factors. The decision indicates that the next shift in interest rates could potentially be an increase.
The decision to maintain the current policy rate was anticipated by thirteen out of fifteen analysts surveyed by Bloomberg, including us, while two analysts had predicted a 50 basis point increase. The focus in Romania has recently transitioned from a debate about whether to pause or further reduce the easing cycle, to a discussion about potential rate hikes.
The political landscape in Romania is currently volatile, with far-right candidate George Simion leading in the presidential election and the recent dissolution of the coalition government. These events have triggered capital outflows and put downward pressure on the Romanian leu.
The future of the currency largely depends on the outcome of the second round of the presidential election this Sunday, where Simion is a key contender. In the event of a negative outcome, there is a possibility of the leu depreciating by an additional 15% over the next year.
In its announcement today, the NBR did not provide clear guidance about future interest rate adjustments. However, the bank did express concern about recent market activity and emphasized the necessity for fiscal consolidation. This seems more likely to be deferred and face greater uncertainty if Simion wins the election.
Apart from the political uncertainties, the current inflation scenario in Romania also suggests the need for a stringent monetary policy. As of April, headline inflation remained steady at 4.9% year on year and is expected to stay above the central bank’s target range of 1.5-3.5% for at least the next few years.
Despite this, the NBR revised its inflation forecast upwards today, but still anticipates inflation to fall within the target range by early 2026.
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