(Bloomberg) -- Romania’s central bank held borrowing costs steady after two consecutive interest-rate cuts as policymakers weigh risks that deficit reduction could have on the nation’s inflation outlook.
The National Bank of Romania left the benchmark rate at 6.5%, a move that was predicted by 12 of 20 economists in a Bloomberg survey. Eight analysts had expected another quarter-point reduction for the last decision by the nine-board’s current lineup.
“High uncertainties and risks stem from the fiscal and income policy stance,” the central bank said in a statement on Friday. It cited the widening budget deficit this year as well as potential budget measures as part of an effort to reduce the gap.
Policymakers in Bucharest expect price growth to ease into the central bank’s target band of 1.5% to 3.5% next year, as inflation slowed in August following a temporary spike in prices. For 2025, the forecast is clouded by government efforts to trim a budget deficit projected to widen to 7% of economic output this year.
A potential surge in spending ahead of parliamentary and presidential elections later this year may give way to a shift in fiscal policy, including tax increases, as investors look to see how Bucharest will trim the gap.
Governor Mugur Isarescu, who secured another five-year term this week to extend his tenure as the world’s longest-serving central bank chief, told a parliamentary hearing that he’ll press on with efforts to tame one of the highest inflation rates in the European Union while seeking to steer the country away from a recession.
Four new members will join the board headed by Isarescu, who has led the bank since 1990, less than a year after the collapse of Nicolae Ceausescu’s communist regime. Deputy Governor Leonardo Badea will take over the first deputy role from Florin Georgescu, who will remain a deputy governor.
Economic growth is expected to slow to less than 2% this year, according to some analysts, as industry remains significantly impacted by the sluggish demand in western European economies.
--With assistance from Barbara Sladkowska.
©2024 Bloomberg L.P.