CEE: Unscheduled S&P rating review affirms Romania’s rating and outlook
On the radar
- In an unscheduled review S&P left Romania’s sovereign rating and outlook unchanged (BBB-, negative).
- Romania’s central bank left key policy rate unchanged.
- Today, Slovakia releases industrial order, Poland will publish core inflation in April.
- Romania will show current account position.
Economic developments
On Friday, S&P carried out an unscheduled rating review of Romania in response to recent political developments. S&P’s affirmation of Romania at BBB-/A-3 with a negative outlook reflects a balance between near-term fiscal progress and heightened political uncertainty. The collapse of the governing coalition raises implementation risks for continued consolidation, particularly as Romania grapples with still-large twin deficits; however, cross-party support for further fiscal adjustment in 2027 and the likely formation of a new government mitigate immediate downgrade pressure. Encouragingly, stronger fiscal performance in 2026, underpinned by earlier consolidation measures and expected EU fund inflows, should support external financing conditions and a gradual narrowing of the current account deficit from last year’s elevated levels. Nevertheless, the negative outlook underscores vulnerability to policy slippage, delays in EU funding, and external shocks, all of which could derail deficit reduction and weaken investor confidence. However, inability to further reduce fiscal deficits in 2027 can result in negative rating action. Finally, Romania’s Finance Minister Alexandru Nazare stressed Romania cannot afford "policy accidents" and must continue fiscal consolidation and reform delivery as the rating depends on EU fund absorption among all. We also want to take a look at Hungary as this week, after markets close, Hungary will be reviewed by Moody’s, followed in consecutive weeks by S&P and Fitch Ratings. We do not expect any change in the rating or outlook. Although a new government brings a lot of hope that Hungary will regain EU funds and remain on course for Eurozone membership, fundamental challenges and a difficult fiscal position are likely to hold off any rating actions at this point.
Market movements
Romania’s kept the key policy rate unchanged at 6.50% at its May meeting. The central bank signaled that the inflation outlook will be revised upward, with updated projections to be released on Tuesday alongside the quarterly Inflation Report. On Tuesday, Governor will also hold a press conference, which may provide further insight into the future policy path and the bank’s assessment of the current macroeconomic environment. For now, we expect the key policy rate to remain unchanged throughout 2026, with the first rate cut likely only in Q2 2027, given the revised inflation path and the recent depreciation of the RON. Czechia’s central bank is ready to increase interest rates if core inflation rises according to the central bank minutes from the last meeting. Observing and reacting to the secondary effects will be the reference point for Czech central bank. The Spring Monetary Policy Report shows that inflation in Czechia is expected near 3% at the turn of 2026/27 returning to target during 2027. CEE currencies weakened against the euro over last week, while log-term yields increased in all countries but Hungary, where extensive demand for government papers keeps the price of bonds elevated.
Author
Erste Bank Research Team
Erste Bank
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