According to Erste analysts, inflationary pressures should ease after the first quarter, due to favourable energy-related statistical base effect. At the same time, Romania’s central bank is expected to hold its key rate steady at 7% throughout 2023.
“Inflation has been the main macro topic for the past year around the world and it is likely to remain in 2023. Therefore, we decided to release an updated view on Romania consumer prices, due to some changes in forecast assumptions. We see inflation at 8.0% by year-end vs. the 8.7% previously, after peaking at 16.8% in November 2022, the fastest pace in almost 20 years. We expect core inflation to peak-out in February 2023 at 15.4% and remain above headline inflation over the entire projection horizon. Headline inflation is projected to decline to around 5.0% by end- 2024, still above the upper bound of Romania’s central bank’s target range of 2.5%±1pp over the medium term. Uncertainties around our inflation outlook remain elevated over the short term and depend on domestic and EU growth profiles, while the war in Ukraine and re-opening of China could potentially have meaningful impact on world commodity prices,” according to Erste’s report.
The downward revision of the 2023 inflation outlook is particularly related to lower energy prices, given the price caps on electricity and natural gas prices over the next couple of years and the assumed decline in soft commodity prices, in line with their futures prices, the report reads.
With potentially slowing inflation, Erste expects Romania’s central bank to keep its key rate on hold at 7.00% throughout 2023. Meanwhile, liquidity management, the central bank’s favourite policy tool, is likely to be actively used in the following quarters, depending on the EUR/RON and upcoming inflation readings. Erste also anticipates an exchange rate of 5.05 lei per euro at end-2023.
After hitting all-time highs in 2022, the global energy market is likely to be more stable this year, with a mild winter and calmer energy prices. Futures prices indicate that electricity and natural gas prices should moderate in 2023, though stay significantly above the five-year average for some time the report also shows.