National Bank of Romania is likely to bring its policy rate to 7.25% by the end of this year from current level of 9.25%, while inflation will display a downward trend for the remainder of this year, ending the year at 5%, Citi’s analysts said.
In view of waning inflationary pressures, the NBR is likely to pay more attention to the widening output gap. This, coupled with the IMF-EU-led multilateral financial package and the stronger-than-expected external adjustment, is likely to encourage the NBR to ease more aggressively for the remainder of this year.

“As a consequence, provided that there is no abrupt halt in the external adjustment and there are no significant pressures on the currency, we believe that the NBR will lower its policy rate to 7.25% by the end of this year”, Citi said.

Inflation rate, which stood below forecasts in May could ease further, down to 5% by year-end, slightly above the NBR’s most recent estimates of 4.4%.

“At 6.0% YoY, inflation in May came in below our projection of 6.4% and the consensus (6.2%). Food and energy prices in particular rose less than we expected. Non-energy goods, in contrast, continued to be a source of inflationary pressure, due to the pass-through from the weaker leu”, Citi report shows.

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