Investing.com -- The National Bank of Romania has decided to keep its benchmark interest rate steady at 6.5%, in line with the predictions of all 17 economists in a Bloomberg survey. This marks the third consecutive time the bank has chosen to leave the rate unchanged amid ongoing political turbulence and inconsistent inflation slowdown.
The central bank highlighted that considerable uncertainties and risks are emerging from the future fiscal and income policy stance. It anticipates a decline in inflation during the first quarter, though it is expected to follow a path that is higher than previously predicted.
Political instability has been a significant issue in Romania since November's first round of the presidential election resulted in an unexpected win for a fringe, pro-Russian candidate. This outcome sparked allegations of interference by the Kremlin and led to a top court's decision to annul the election. A rerun of the vote is scheduled for May.
Inflation in the country reached 5.1% last year, exceeding the central bank's forecast. This rate is among the highest in the European Union. The government's intention to decrease the budget deficit to approximately 7% of the economic output this year from 8.6% in 2024 could lead to tax increases in the upcoming months, contributing to inflationary pressures.
The central bank presently anticipates that inflation will decrease to 3.5% by the end of this year, which is at the top end of its target range. However, a revision of this outlook is expected at the next meeting in February. By that time, the specifics of the 2025 state budget plan may provide more insight into possible tax changes that could affect prices and the economy.
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