At today's monetary policy meeting, the central bank’s Monetary Policy Committee (MPC) unanimously decided to cut the policy rate by 25- bps to 9.00%, maintaining the contractionary stance of monetary policy. The decision differs from the central bank survey and our call for a new pause.
The central bank's statement highlighted that inflation expectations are at historic lows, with falling inflation expectations. The average inflation expectations stand at 5.5%, within the tolerance range for the third month in a row. Consequently, we estimate the ex-ante real policy rate at 3.34% (also including the expectations from businessmen), above the center of the BCU’s neutral real rate range estimate of 2.5%.
On the global front, the BCU highlighted that the USD continues to weaken. Meanwhile, trade and geopolitical uncertainty are easing, mitigating international price volatility.
The Central Bank mentioned that there may be room to continue reviewing the policy rate downward as long as inflation and inflation expectations continue to decline.
Our take: The central bank seems to be comfortable with inflation and inflation expectations convergence. Therefore, we anticipate at least a further cut in the policy rate for the rest of the year, provided that inflation and inflation expectations continue to decline. The next monetary policy meeting will be held on August 19.