CEC Bank expects Romania's twin deficit to narrow in 2025
<p>Romania's twin fiscal and current account deficits will narrow in 2025 in line with softer pressures posed from both the public and private, under the baseline scenario drafted by CEC Bank's Head of Asset and Liability Management Ionut Lianu quoted by <a href="https://www.economica.net/ionut-lianu-cec-bank-cel-putin-o-reducere-a-dobanzii-cheie-ar-putea-fi-operata-de-BNR-pana-la-sfarsitul-anului-deficitele-ar-putea-micsora-avansul-salariului-real-in-2025_775040.html?mc_cid=3d5061e514&amp;mc_eid=cd1f92f96c" rel="noopener" target="_blank">Economica.net</a>.</p>

<p>The fiscal consolidation and lower (if any) real rise of the average wages will moderate the public and private demand, respectively, with a positive impact on the current account deficit, he explained.</p>

<p>This was not the case in 2024, when both the fiscal deficit increased, pushing up the public demand, and the wages rose at high real rates, stimulating the private demand and thus the imports of goods and services.</p>

<p>"The local currency (leu) could see a very slight depreciation, which further limits the appetite for imports," he added.</p>

<p>In its recent note on the budget revision, the Fiscal Council pointed to the pressures posed by the wide CA gap (some 7% of GDP) on the exchange rate.</p>

<p>In this context, Lianu expects at least a 25bp rate cut, possibly more, by the end of the year.</p>

<p>At this moment, the 6.5% monetary policy rate is above the inflation (5.1% y/y in August), which the CEC Bank official expects to decrease to 4.5% by the end of the year.</p>

<p>"The prospects for next year are moderate [in terms of economic growth], the fiscal policy is expected to no longer stimulate the economy, rather on the contrary – in the context of the need to gradually reduce the budget deficit. The inflation trend is decreasing, with imported inflation also decreasing.&nbsp;</p>

<p>Under these conditions, the National Bank of Romania (BNR) could decide on another interest rate cut this year," explains Ionuț Lianu. In this context, CEC Bank's base scenario is 6.25%, although there is also a significant chance of two cuts.</p>

<p>Speaking on the yields, Lianu says they include a premium in the case of Romania, but expects [downward] correction as the twin deficits narrow. The 2%-of-GDP public deficit cost estimated for this year would further decrease, he added.</p>

<p><em>iulian@romania-insider.com</em></p>

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