Bálint Csaba, a member of the Board of Directors of the National Bank of Romania (BNR)
Fotó: Román Nemzeti Bank
„Although it was anticipated that this year’s ‘super-election year’ would witness unprecedented spending due to continuous campaign giveaways, the Bucharest government has spent even more than expected. As a result, the budget deficit, which was high to begin with, is expected to rise to around 8%,” said Csaba Bálint, a returning member of the Board of Directors of the National Bank of Romania (BNR), in an interview with Krónika. In addition to discussing inflation, exchange rate trends, and the potential consequences of the massive budget deficit, the macroeconomic analyst also shared insights into the daily work of a member of the central bank's governing body.
2025. február 13., 10:502025. február 13., 10:50
We regularly contact Csaba Bálint to discuss global and Romanian economic trends, expected developments and consequences, and the uncertainty that has become part of our daily lives due to the coronavirus pandemic and subsequent wars. However, he has not yet shared with Krónika readers what a member of a central bank’s board of directors does and how their workdays unfold. Having recently begun another five-year term on the Romanian National Bank’s (BNR) board, we first asked him to provide some details about his work — at least those that can be publicly disclosed. One thing became clear quickly: he could not comment on whether an interest rate cut is expected in November, as analysts have predicted.
„Perhaps the most well-known aspect, or what most often appears in the press and reports, are the decisions related to monetary policy. Raising or lowering the base interest rate is probably what is most visible,” said the BNR board member. He reminded us that typically, there are eight such interest rate decision meetings each year. However, that is not the only time board members meet – they discuss and prepare for these decisions beforehand on several occasions.
He elaborated that beyond preparatory meetings, numerous bilateral and technical discussions also take place among colleagues to ensure the most appropriate decisions are made for the given situation.
Bálint also highlighted that within the Romanian National Bank, several departments contribute to decision-making. „Some departments analyze economic indicators or create short-term forecasts for a few months to half a year. Others focus on long-term forecasts, spanning two to three or even four years. Another department consolidates this information to make recommendations on what the most suitable or optimal decisions might be. The majority of my time is linked to these monetary policy decisions. But of course, a central bank deals with much more than this,” he explained.
When describing the workload of an average week, Bálint revealed that each board member reviews hundreds of pages of material.
Previously, I worked as a macroeconomic analyst, which is helpful when it comes to making decisions related to monetary policy. We track hundreds of indicators, and I personally follow forecasts, conduct risk analyses, and perform impact assessments. So, in this sense, compared to the usual tasks of a macroeconomic analyst, my daily routine hasn’t changed radically. The majority of my time is still spent tracking hundreds of data series on the Romanian and international economies on a daily basis,” explained Csaba Bálint.
Pivoting to the subject of the economic outlook, we asked Bálint whether, after the significant drop in the inflation rate, we can expect another interest rate cut in November, as analysts have speculated. Predictably, no specific answer was forthcoming, as such information is not disclosed in advance by central bank officials. „In short, I would say that we’ve observed a significant reduction in inflation recently–meaning the pace and dynamics of price increases have slowed. This has given the Romanian National Bank the opportunity to lower the base interest rate, which it did twice over the summer months. However, at our most recent meeting in October, we made a more cautious decision because we see many uncertainties in the forecasts. Primarily, the challenges and difficulties surrounding the budget are what urge caution,” the financial expert explained.
„The budget deficit is very high, and it’s not yet clear how the next government will address it after the elections. This is critical because the approach to this issue will significantly influence the trajectory of inflation. So I would say the Romanian National Bank is currently in a cautious, wait-and-see phase. If we are looking at the longer term – the next one or two years – we believe inflation will continue to balance out and thereby interest rates will as well, eventually dropping. However, it is very difficult to say how fast and in what way this will happen,” said Csaba Bálint. As an economist, he expressed skepticism about how the deficit could be reduced significantly and rapidly without tax increases.
Fotó: Román Nemzeti Bank
„In an ideal world, the first step would be for the government to maximize efficiency on the expenditure side. I believe there’s still room for improvement here. The second step would be to enhance the efficiency of tax collection–there’s room for improvement in this area as well. Only when these options are exhausted should a government resort to tax hikes as the third and final step. But I don’t think we live in an ideal world, and this sequence could easily be reversed,” he warned, predicting a less optimistic scenario.
„I find it hard to imagine that, before the elections, we’ll see detailed and honest plans for handling the budget deficit,” he remarked.
His key recommendation is for the government to reduce the deficit gradually, avoiding drastic measures that could overburden the economy or make adaptation impossible. “However, if the issue isn’t resolved and no decisive actions are taken, the markets will eventually penalize us. In other words, financing will dry up; no investor will be willing to fund the Romanian budget,” he cautioned.
This warning comes amid enormous borrowing. For instance, on Thursday alone, the Romanian government took out loans amounting to 346.7 million RON from various banks.
In an interview conducted earlier this year, Csaba Bálint discussed how this super-election year would likely be defined by campaign spending, with the Bucharest government recklessly distributing money. We asked the economic expert whether the government has spent more or less than expected. „More,” was the short and direct answer. He then elaborated on his position.
„The budget deficit last year was very high, and this year's is even higher. It surpasses even the most negative expectations. Quantified, it reaches 8 percent," said Csaba Bálint. (As was widely known, the government was recently forced to admit that it is impossible to meet the 5 percent deficit target set for the 2024 national budget and raised the figure to 6.9 percent. According to the European Commission’s estimates, the deficit will be even higher, around 7 percent, while the Fiscal Council’s forecast is even more pessimistic, predicting that Romania will close this year with an 8 percent budget deficit.)
According to analysts, the exchange rate of the Romanian leu to one euro will soon cross the psychological threshold of 5 RON – a record-breaking low. We asked Csaba Bálint about this as well. "The development of the exchange rate plays a significant role in inflation dynamics, and the inflation situation has not been fully resolved yet. The rate of increasing prices is slowing, but it is still far from being considered solved. At the same time, there are several indicators that could suggest whether an exchange rate is undervalued or overvalued, and each indicator points to something different, so we do not have a completely clear picture of whether the exchange rate is currently too strong or too weak. Taking an average, economic indicators suggest that the leu is moderately overvalued, but this does not differ from the other countries in the region.
If we look back at the past 4-5 years and compare the RON exchange rate to the Hungarian forint, the Polish zloty, and the Czech koruna, and we examine the nominal exchange rate (not the real exchange rate), we can see that it is on par with the region’s average. The real difference lies in its volatility; the fluctuations have been much more moderate compared to Hungary, Poland, or even the Czech Republic. But overall, it fits within the regional trend," explained the member of the BNR board.
„I wouldn't even dare to take a guess. As I said, several indicators suggest that the currency might be overvalued, and this is something that needs attention. We are closely monitoring this. I do not believe that the issue in Romania is with the level of the exchange rate itself, but much more with the fact that the budget deficit has swollen to unsustainable levels. And that could have repercussions, which, of course, may also affect the exchange rate, unless steps are taken that restore investor confidence in Romania”, pointed out Csaba Bálint, highlighting the interconnections.
Bár előre sejteni lehetett, hogy az idei választási szuperévben minden eddiginél nagyobb összegeket emészt fel a folyamatos kampányadakozás, a becsültnél is több pénzt költött el a kormány – vallja Bálint Csaba, a BNR igazgatótanácsának régi-új tagja.
Iratkozzon fel hírlevelünkre, hogy elsőként értesüljön a hírekről!
Though the noise of the upcoming parliamentary and presidential election campaigns diverts attention from critical issues, voters should approach the November-December elections aware that tough times are ahead for Romania in 2025.
We hope that the leaders of RMDSZ (Democratic Alliance of Hungarians in Romania) will be gracious enough to send a bouquet of flowers and a box of chocolates to Elena Lasconi.
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