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CFA Romania analysts cut monetary policy inflation rate expectations to 6 pct by end of the year
CFA Romania Association analysts are still expecting two interest rate cuts this year, so that the key interest rate will reach 6% by the end of the year, according to a monthly survey conducted by the CFA Association Romania.
Currently, the key interest rate is 6.5% per annum.
"In the July exercise, a survey was also conducted on the monetary policy interest rate expectations for 2024 and 2025. Thus, for this year, the survey participants expect two more cuts in the monetary policy interest rate and, as a result, the monetary policy interest rate to fall to 6% at the end of the year. As for next year, the participants anticipate four more cuts in the monetary policy interest rate, with the monetary policy interest rate expected to reach 5% by the end of 2025," reads a press release of the organization, sent on Monday.
The inflation rate anticipated for the 12-month horizon (August 2025) increased compared to the previous year and averaged 4.95%. At the same time, 50% of participants expect a reduction in the inflation rate over the next 12 months, while 33% expect it to remain stable.
As for the EUR/RON exchange rate, around 89% of the participants expect a depreciation of the RON in the next 12 months, while the remaining 11% expect a stagnation. Thus, the average value of expectations for the 6-month horizon is 5.0098 RON for one euro, while for the 12-month horizon, the average value of the expected exchange rate is 5.0735 RON for one euro.
The state budget deficit forecast for 2024 has continued to increase and is anticipated (average value of expectations) at 7.3% of GDP, while economic growth expectations for the current year have continued to decline compared to previous years and stand at 2%, reads the document.
Public debt as a percentage of GDP is expected to increase to 55% over the next 12 months.
As far as the evolution of residential property prices in cities is concerned, 39% of participants anticipate stagnation or a decrease in the next 12 months, while 22% predict an increase. Furthermore, 28% of participants believe that current prices are fairly valued and 67% that they are overvalued.
Under these conditions, the Macroeconomic Confidence Indicator of the CFA Association Romania fell in August by 5.2 points to 46.8 points. This was generated by a 10.2-point decrease in the expectations component of the indicator, while the current conditions component rose by 4.9 points.
"A diverging evolution within the components of the indicator can be noticed. While the current conditions component is growing, expectations are falling sharply, as high-frequency macroeconomic indicators show a slowdown in the economy and expectations of an extremely high public deficit lead to the expectation of a tax increase in the coming year," said Adrian Codirlasu, CFA, vice president of the CFA Romania Association, quoted in the press release.