But on Wednesday, Romania's central bank said data pointed only to a modest slowdown in economic activity in the first and second quarters.
It added that lower commodity prices and short-term inflationary expectations fully countered the gradual pass-through of increased costs of materials and wages into consumer prices in the first quarter. The bank's current forecast sees inflation falling to 7.0% in December, from March's 14.5%. It sees inflation at 4.2% at end-2024, still above its 1.5%-3.5% target band. The bank will release new forecasts for this year and next on Friday. "The updated forecast broadly reconfirms the coordinates of the previous medium-term projection," it said in a statement.
Most analysts polled by Reuters this month had expected the unchanged decision. Borrowing costs are seen on hold throughout 2023 before falling to 6.5% by the end of the first quarter of next year.
Analysts have said policymakers are likely to use market liquidity management as a tool to keep policy loose, depending on leu currency developments and future inflation readings. The Romanian leu is vulnerable among currencies in central and eastern Europe (CEE) as a result of the European Union state's large current account and budget deficits. "Interest rate cuts are likely to come onto the cards in early 2024 – later than in the rest of CEE," said Liam Peach, senior emerging Europe economist at Capital Economics, in a research note. The leu was last flat against the euro. (Reporting by Luiza Ilie; Editing by Mark Potter)
