BUCHAREST (Reuters) – Romania’s central bank lifted its inflation outlook on Monday as supply-side shocks and war in Ukraine drive stronger-than-expected price growth.
Energy prices and their transmission to other prices have significantly overshot the central bank’s expectations, Governor Mugur Isarescu told a news conference.
But he added the bank’s slow approach to monetary policy tightening has worked, with interest rates now catching up to levels kept by other central and eastern European banks, like in Poland and the Czech Republic.
“Our slow approach… gave time to leu borrowers to get used to higher interest rates,” he said.
The bank’s goal was to reach a balance point for monetary policy rates, he said.
Romania’s policymakers earlier this month raised the benchmark interest rate by 50 basis points to 6.75%, winding down their pace of tightening in line with others in central Europe after a year of sharp hikes.
Romanian rates, after hikes totaling 550 basis points, are at their highest in over a decade while inflation is at over 15%.
The central bank’s new forecasts saw annual inflation at 16.3% in December, compared with a previous forecast of 13.9%. It sees inflation at 11.2% at end-2023, compared with a previous forecast of 7.5%.
Isarescu said the forecasts did not take into account changes to a government energy support scheme for homes and businesses approved on Friday, partially regulating its power market until March 2025 to ensure security of supply.
Energy prices have shot up around Europe, compounding inflation pressures, as Moscow cuts gas supplies to the European Union in the wake of the Ukraine war.
(Reporting by Luiza Ilie; Editing by Jason Hovet)
