Romania to Extend Rate Pause Ahead of Elections: Decision Guide

Andra Timu and Irina Vilcu
·2-min read

(Bloomberg) -- Romania’s central bank will likely extend an interest-rate pause as policymakers weigh fiscal risks tied to a string of elections to be held over the next month.

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The National Bank of Romania will leave the benchmark rate at 6.5%, according to 15 of 17 economists in a Bloomberg survey. Two analysts forecast a quarter-point reduction on Friday.

Romania’s inflation slowed to the lowest level in three years in September and the central bank expects price growth to re-enter its target band of between 1.5% to 3.5% next year. But the outlook for 2025 remains clouded by a budget deficit likely to exceed 7% of economic output this year, raising the prospect of tax increases after parliamentary and presidential elections.

“Fiscal concerns are likely to dominate the debate within the board meeting,” said Ciprian Dascalu, a Bucharest-based economist at Erste Group Bank AG. “The central bank is likely to reiterate data-dependency, maintaining a significant buffer of policy restrictiveness to offset the over-expansionary fiscal policy.”

This is the first decision under a new central bank board whose mandate started in October. Five out of nine of the members, including Governor Mugur Isarescu, kept their mandates to ensure continuity.

Economic growth is expected to slow to less than 2% this year, according to analysts, as industry remains significantly affected by sluggish demand in western European economies.

Dascalu said he expects the next rate cut in the second quarter of 2025, depending on the size of the fiscal consolidation package presented by the new government after the Dec. 1 parliamentary election. A presidential contest will be held Nov. 24, with a second round likely two weeks later.

--With assistance from Barbara Sladkowska.

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