Romania won’t cut borrowing costs this year, as inflation is expected to stay above the 7% key rate amid rising fiscal risks, the governor of the Balkan nation’s central bank said.
(Bloomberg) — Romania won’t cut borrowing costs this year, as inflation is expected to stay above the 7% key rate amid rising fiscal risks, the governor of the Balkan nation’s central bank said.
“We won’t cut rates, and we won’t even begin discussing cutting rates, until we have confirmation that inflation has fallen clearly below the key rate,” Mugur Isarescu told reporters in Bucharest on Wednesday.
While other central banks in the region have begun discussing or moving ahead with monetary policy easing, Romania’s central bank kept the benchmark rate unchanged for a fifth consecutive meeting on Monday, trying to strike a balance between “stubborn” core inflation and sluggish economic growth.
The Banca Nationala a Romaniei increased its headline inflation forecast for this year to 7.5% compared with a previous estimate of 7.1% as a government plan to cut spending and boost revenue to meet this year’s budget deficit target may translate into higher taxes. Inflation will be slightly higher than anticipated in 2024 as well at 4.4%, the bank said Wednesday.
Read More: Romania’s Budget Gap Target at Risk as Government Tests Measures
Prime Minister Marcel Ciolacu’s administration is struggling to address a worsening budget deficit that risks triggering the loss of much-needed European funds. The ruling coalition, which is formed by the country’s two largest parties coming from opposite ends of the political spectrum, has been debating measures that include both spending cuts and revenue increases for weeks. Ciolacu said he will discuss the current deficit target of 4.4% of economic output with the European Commission.
“We might see money market rates move up, without any move from our side, if we fail to convince the market that we have the strength to achieve consistent fiscal consolidation,” Isarescu said.
Asked if rate cuts are possible this year, he said “no way.”
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