(Bloomberg) -- Romania unexpectedly cut borrowing costs for a second consecutive meeting as a slowdown in inflation outweighed risks from a global market rout and a ballooning budget deficit.
The National Bank of Romania lowered the benchmark interest rate by a quarter-point to 6.5% on Wednesday, matching the forecast of eight of 20 economists polled by Bloomberg. Twelve analysts had expected no change to the rate, which previously tied with Hungary as the highest level in the European Union.
A worldwide market selloff on Monday didn’t deter policymakers from continued monetary easing, with rate-setters focusing on a slowdown in annual inflation to 4.9% in June, the lowest level since 2021. General and presidential elections later this year, though, pose fiscal risks, with the EU forecasting a budget deficit as high as 7% of economic output.
In a statement, the central bank cited “the significant improvement in the near-term inflation outlook” for its decision, while cautioning about “the still elevated uncertainty surrounding forecasts over the longer time horizon.”
The institution also approved its quarterly inflation report, which Governor Mugur Isarescu will present at a briefing on Friday.
Poland, Hungary and the Czech Republic have been ahead of Romania in easing monetary policy, cutting rates several times over the past year. Hungarian rate-setters are targeting one or two more quarter-point cuts this year while the central bank in Warsaw may keep rates unchanged until 2026 because of lingering inflation concerns.
Romania, which won’t hold another rate meeting until October, continued easing before September, when investors are betting both the Federal Reserve and the European Central Bank will deliver rate cuts. Those decisions “are also relevant” for Romania’s policy outlook, the central bank said in the statement.
“The central bank in Romania is taking advantage of a window of opportunity to ease the monetary policy as the inflation outlook is better than expected, but uncertainties are still very high,” said Ionut Dumitru, a Bucharest-based economist at Raiffeisen Bank. Another cut of 25 basis points to the key rate will likely come this year, followed by a pause amid the elections, he said.
--With assistance from Barbara Sladkowska.
(Updates with chart in fifth paragraph, analyst comment in last.)
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