Romania's Central Bank Interest Rates

BUCHAREST (Reuters) – Romania's central bank identified a chance to reduce interest rates due to falling inflation but is pausing due to an anticipated fiscal correction, a board member said Tuesday.

Earlier this month, the central bank maintained its benchmark interest rate at 6.50% after two cuts, noting the inflation's unpredictable downward trend.

With increased spending ahead of presidential and parliamentary elections in November and December, analysts believe the bank's ability to lower the benchmark rate further is restricted by growing budget and current account deficits.

The widening budget deficit has worsened Romania's inflation, expected to exceed the target until at least 2027, according to S&P Global Ratings. The bank hopes inflation will align with its 1.5%-3.5% target range by the end of 2025.

During a financial seminar, central bank board member Csaba Balint emphasized the significance of the budget deficit adjustment plan. Regarding future interest rates, he stated, "I believe the general trajectory is downwards. The budget correction would imply a lower fiscal impulse, helping to decrease inflation and allowing for continued easing of monetary policy."

However, Balint warned about the challenges in predicting timelines or rates of change.

Romania has yet to present a 2025 budget, with the government considering a seven-year plan to reduce the deficit below the EU’s 3% threshold. The coalition government recently adjusted its 2024 fiscal deficit target to 6.94% of economic output, though an independent fiscal authority anticipates it could escalate to 8%.

Analysts and rating agencies forewarn tax increases starting in 2025.