Romanian Leu: Policy on hold as politics weigh – Societe Generale

Societe Generale expects no change from the NBR, keeping the policy rate at 6.50% as political deadlock in Bucharest and Romanian Leu weakness offset the sharp fall in inflation. The bank notes Headline CPI has dropped markedly on base effects. It highlights ongoing government formation uncertainty and warns that prolonged turmoil could jeopardize Romania’s Investment Grade rating.

NBR seen steady at 6.50 percent

"In EM, we pencil in no change by the NBR at 6.50% as political deadlock in Bucharest and weakness in the RON outweigh the significant slowdown in inflation. Headline CPI declined from a peak of 10.85% yoy in May to 6.17% in August mainly because of base effects."

"President Dan nominated diplomat Luca Niculescu as PM after his previous pick, Muresan, lost a confidence vote last week. Niculescu has until the 15th to form a cabinet and secure parliamentary approval. His nomination received a cool response from the Social Democrats, parliament’s largest party."

"They are demanding a shift away from the previous government’s austerity policies, even as Romania remains under the EC excessive deficit procedure and risks a downgrade to junk status."

"Last week, S&P affirmed Romania’s BBB− rating, the lowest IG level, but warned that prolonged political turmoil could trigger a downgrade if it delays fiscal consolidation."

"Moody’s similarly said the coming weeks would be crucial in determining whether this year’s fiscal adjustment is durable enough to support the current IG rating."