In today's monetary policy meeting, the central bank's Monetary Policy Committee (MPC) hiked the policy rate by 25 bps to 9.25% (marking the third consecutive increase). It is important to note that this was the first meeting under the new composition of the monetary policy committee.
The decision aims to consolidate the continued decline in inflation to the Monetary Policy Horizon (MPH) target of 4.5%. The statement mentioned that the decision was unanimous and takes the monetary policy rate to a contractionary level. In the press release, the central bank highlighted that annual inflation remained within the target range (3%-6%) for twenty-two consecutive months, while inflation expectations for the next twenty-four months (monetary policy horizon) remain around the upper bound of the target. As a result, we estimate the ex-ante real policy rate at 2.75%, above the BCU's estimate of the neutral real rate at 2.5%.
On the global front, uncertainty has increased following the recent announcement of tariff measures, leading to a rise in the risks of an economic slowdown. Although it is still too early to assess the final nature of these measures and their impact, the MPC considered that the current disinflation process could be made more conducive, in part due to a decline in commodity prices.
Our take: We expect the committee to hike the policy rate by 25 bps to a terminal rate of 9.50% in the next monetary policy meeting to be held on May 20. However, we cannot rule out the possibility of a pause in the cycle, given the increased global uncertainty caused by the new tariff framework.