Romanian Inflation Rises to 10-Month High, Limiting Easing Space

Romanian inflation accelerated to the highest level since March as rising energy prices may prompt the central bank to postpone more policy easing after last month’s interest-rate cut.

Consumer prices increased 3% from a year earlier in January compared with a 2.1% advance in December, data published Friday showed. That’s above the 2.5% median estimate in a Bloomberg survey of economists. Inflation was 1.3% from the previous month.

Romanian Inflation Rises to 10-Month High, Limiting Easing Space

Key Insights

  • Inflation, for which the official target is 2.5%, remains manageable and the central bank may still trim borrowing costs from a record-low 1.25% to help the economy recover from the pandemic. The benchmark rate is still among the Europe Union’s highest
  • In any case, the effect of higher energy tariffs on inflation may be short-lived. Central bankers expect the impact to fade toward year-end, when price growth is forecast at 2.5%
  • The leu will also play a role in decision-making. Poland has stepped in to cap gains in the zloty in a bid to buoy exporters. Romania has always fretted about volatile capital inflows from abroad based on its comparatively high benchmark rate

What Economists Say

  • “Inflation is likely to pick up in the medium term,” Goldman Sachs economist Kevin Daly said in a note to clients. “We expect the central bank to leave rates on hold in the near future but, if global risk sentiment continues to improve, a further reduction in interest rates is possible”
  • “The uncertain evolution of energy prices will only add to caution since the central bank is firmly focused on short-term conditions when setting interest rates,” Dan Bucsa, an economist at UniCredit in London, said in a note to clients. “A rate cut to 1% may be postponed to the second half of the year.”

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