Romania's central bank is likely to cut interest rates further, but policymakers are concerned by the recent developments in Greece and any sign of contagion to the country's financial markets would halt the easing cycle, Capital Economics said Wednesday.
The National Bank of Romania slashed the key rate for a fourth consecutive session to a record low 2.50 percent from 2.75 percent, earlier on Wednesday.
Given the dovish note struck by the National Bank of Romania's Governor Mugur Isarescu during the press conference, Capital Economics Senior Emerging Markets Economist William Jackson expects two more 25 basis-point rate cuts for this year. Meanwhile, Isarescu signaled cuts to banks' minimum reserve requirements.
"But the MPC appears to have been spooked by the latest developments in Greece and any sign of contagion to Romania's financial markets would bring the easing cycle to a halt," the economist said.
Romania is better placed to withstand contagion from "Grexit" concerns now than it was in 2011-12, Jackson noted. The country's current account deficit has narrowed sharply, reducing the economy's dependence on foreign capital inflows, and FX debts are now lower, he said.
While the latest reduction in interest rates was unlikely to have much impact on monetary conditions, it was clearly a signal that the MPC is concerned about the weak inflation outlook, Jackson said.
He pointed out Isarescu's comments at the press conference that said headline inflation is likely to remain below the lower bound of the NBR's target range of 2.5±1 percent over the coming months.
The central bank chief also said growth is set to slow that was in contrast to the statement on economic growth in the accompanying press release, Jackson said. According to the economist, it may point to dissent within the rate-setting body.
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December 19, 2025 15:10 ET U.S. inflation data and interest rate decisions by major central banks were the highlights of this busy week for economics news flow. Employment data and survey results on the housing markets also gained attention in the U.S. In Europe, the European Central Bank and Bank of England announced their policy decisions and macroeconomic projections.