Romania maintains its interest rate at 6.5%, anticipating an inflationary surge
Romania Faces Significant Inflation Spike, But Recovery Expected by End of 2026
The National Bank of Romania (BNR) has maintained its monetary policy rate at 6.5% on August 8, as the country braces for a surge in inflation in the coming months.
The central bank's policy is contingent on the government's ability to grasp opportunities created by EU funds and maintain macroeconomic stability. The use of EU funds is crucial for fostering the growth potential over the long term. However, the Romanian economy stagnated in Q2, and the first fiscal consolidation package brings an uncertain outlook for the coming quarters.
The BNR Board emphasizes the importance of maintaining a balanced macroeconomic policy mix and implementing structural reforms. Inflation in June was higher than expected, and a price shock is anticipated in July due to electricity price increases and a VAT rate hike. The predicted inflation trajectory implies a 4.3% rise in consumer prices in H2, mainly due to higher electricity prices, excise duties, and VAT rates.
The projected inflation trajectory for Romania from 2025 to 2026 indicates a sharp increase in 2025, with inflation expected to peak around September at approximately 9.6% to 9.7%, followed by a gradual decline throughout 2026 to about 3% by the end of that year. This upward revision is largely due to the expiration of an energy price capping mechanism and increased VAT and excise duties implemented from August 2025.
Key factors influencing inflation are the expiry of the electricity price cap in June/July 2025, which removes a significant constraint on energy prices, causing a sharp price increase in Q3 2025. The increase in VAT and excise duties effective from August 1, 2025, directly raises consumer prices. Fiscal adjustment and budget deficit reduction efforts are expected to restrain demand and therefore exert downward pressure on inflation in 2026.
Regarding policy rates, the BNR is expected to maintain its benchmark interest rate around 6.50% through the middle of 2025, but analysts expect a slight lowering to 6.25% by the end of 2025, with some risk of the rate remaining on hold due to the inflationary impact of tax hikes and fiscal policies. Disinflationary pressures driven by fiscal adjustments are expected to strengthen in 2026, contributing to the inflation decline.
The BNR Board reiterates the importance of using EU funds to strengthen the economy's capacity to withstand adverse developments. The government's policies under the 7-year plan are expected to have a significant impact, both directly and indirectly, on the central bank's policy.
The inflation is projected to surge "markedly" in Q3, but will witness a steep downward correction in 2026 Q3. The revised inflation forecast will be unveiled on August 12. The BNR Board stresses the need to preserve a stable macroeconomic framework and strengthen the economy's resilience against adverse developments. The uncertainties are of both domestic and external nature. The uncertainties mentioned by the BNR are predominantly in favor of deferred monetary easing.
The National Bank of Romania (BNR) needs to maintain a balanced macroeconomic policy mix, which includes adjusting its monetary policy, to deal with the surge in inflation and preserve macroeconomic stability, particularly in the business and finance sectors. The government's ability to effectively utilize EU funds will significantly influence the long-term growth potential and the Romanian economy's resilience against adverse developments.
