Romania to begin cutting key interest rate
|On the radar
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Serbian central bank kept policy rate unchanged at 6.5%.
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In Slovenia, industrial output contracted by -6.9% y/y in March.
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In Czechia the inflation rate arrived at 2.9% y/y and 0.7% m/m.
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In Serbia, inflation rate will be published at noon CET.
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Romanian central bank is expected to cut policy rate by 25 basis points to 6.75%.
Economic developments
Romanian central bank should begin with monetary easing. Inflation developments have been broadly in line with the central bank’s forecast from February and forward guidance was quite straightforward back then. We anticipate that it may be a close call as minutes from the previous meeting mentioned that the central bank could revise a bit upwards the short-term inflation outlook. Given the sticky core services and core non-food inflation components, there are upside risks to our call for key rate at 5.75% by year-end vs 7.00% currently, as the NBR might turn data dependent as wage pressures amplify and fiscal execution points to a significant overshooting of the budget deficit target. As for other central bank’s in the region, we see Czech and Hungarian central bank to continue with monetary easing and see the key policy rate at 4% and 6.5% respectively at the end of 2024. In Poland, Governor Glapinski sees the space for talks about monetary easing only at the beginning of 2025. Finally, Serbia should begin to cut interest rates in July following ECB that is largely expected to start easing in June. We see key interest rate at 5.25% at the end of this year.
Market developments
As for other news than central bank’s decisions discussed above, Moody’s announced completion of periodic review of ratings of Croatia. No rating announcement was delivered, however. In Poland, neither S&P nor Fitch changed the rating or outlook. Last week, CEE currencies strengthened against the euro. The EURCZK dropped below the level of 25, the EURHUF is lower than 390, while the EURPLN touched 4.28. CEE government bond yields edged lower last week, fueled by the rally of bonds on major markets taking place in the first half of the week in the aftermath of weaker than expected US non-farm payroll data.
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