The National Bank of Romania (BNR) increased the monetary policy rate by 25bp to 7% on January 10 in line with expectations, in what is believed to be the last step of the monetary tightening cycle prompted by the surge in energy and food prices last year.

The BNR voiced confidence about inflation falling into the single-digit range as soon as Q3 this year, half a year earlier than generally expected.

"The interest rate hike cycle has ended in Romania, and the key rate could remain unchanged at 7.00% at least until the end of this year. It is possible that the BNR will actively use liquidity management in the coming quarters, depending on the currency and inflationary developments," a research note from financial group Erste reads.

The official BNR forecast indicates 11.2% y/y inflation at the end of the year – but the projection was inked before the endorsement of the latest version of the cap and subsidy scheme.

“This is due to the extension of energy price capping and compensation schemes until 31 March 2025,” the central bank’s statement reads, explaining the more optimistic expectations.

The BNR’s monetary policy decisions did not surprise many analysts, and most of them expect no further monetary tightening.

However, Eugen Sinca of BCR Bank declared himself somewhat surprised. "We expected the monetary policy interest rate to remain at 6.75% under the circumstances that the money market has been in a substantial liquidity surplus for the past two months, and short-term interbank interest rates have decreased. We believe that the interest rate hike cycle is over, and the BNR could keep the monetary policy interest rate at 7% at least until the end of this year,” said Sinca.

Valentin Tataru, the chief economist of ING Bank, said he believes that after the BNR’s decision to increase the interest rate on January 10, there are hardly any possibilities for more increases this year. "We believe the current hike cycle is over. If necessary, the BNR will probably make good use of its know-how in managing interbank liquidity, in order to achieve its objectives."