Romania will maintain interest rates steady at least until the first quarter of next year.
Romania's central bank, the National Bank of Romania (NBR), has kept the key interest rate unchanged at 6.5%, reflecting persistent inflation risks despite a slowdown in economic growth. This decision comes as analysts and financial groups such as Erste Group and ING Romania predict that the monetary policy rate will remain steady at 6.5% until at least the first quarter of 2026.
This cautious approach by the NBR is in response to the unexpected surge in inflation, with June's figures already coming in on the upside. By the end of 2025, headline inflation is projected to reach around 7.5%, driven by factors including a 30% increase in electricity prices, a 60% pass-through from VAT hikes, and full pass-through of higher excise duties. Core inflation is expected to be about 6.5% year-on-year by the end of 2025.
The high inflation rates stem from recent fiscal and energy market reforms, notably the July energy price liberalization and August VAT increase. These changes have added some predictability to economic policy, but they also bring new inflation risks.
Despite the high inflation rates, rate cuts are unlikely before February 2026, according to Erste Group. ING Romania, however, suggests that there might be some easing possible from the second quarter of 2026 if disinflation is on track. Post-Q1 2026, the NBR might consider policy easing depending on the evolution of the output gap and inflation trajectory.
The RON remains significantly overvalued, and there is ongoing upward pressure on EUR/RON, according to ING Romania. Markets will be watching the execution of fiscal consolidation closely, as it may impact the RON's exchange rate.
The liberalised electricity prices from July 1, plus higher VAT and excise duties in August, will push inflation into the high single digit area in the coming months, according to ING Romania's forecast. The wide current account deficit is expected to continue putting pressure on the RON's exchange rate.
In the second half of 2026, inflation is expected to return towards the 4.0% area due to strong base effects and softer demand. By the end of the year, ING Romania sees a potential appreciation of the RON against the EUR.
The NBR has a monetary board meeting scheduled for August 8, and ING Romania expects the bank to keep its policy unchanged at 6.50% at this meeting. Erste Group forecasts headline inflation at 7.5% by the end of the year, with a peak above 8.0% in September-October. Erste Group also expects the BNR's press release to mention an upward revision in the short-term inflation outlook.
ING Romania stresses the ongoing upward pressure on EUR/RON in recent weeks. The consensus among analysts is that the monetary policy rate will remain unchanged until at least the first quarter of 2026. The massive current account deficit will continue to weigh on the currency, and markets will closely monitor the execution of fiscal consolidation. ING Romania sees more flexibility from the central bank on the foreign exchange front and continuous pressures from the wide current account deficit, with the yearend target exchange rate at RON 5.1 to EUR.
This consensus reflects a cautious approach by Romania's central bank, prioritizing controlling inflation risks before considering monetary easing.
- Romania's business environment faces challenges as high inflation rates are projected to persist, with headline inflation expected to reach around 7.5% by the end of 2025.
- Despite the ongoing inflation issues, finance analysts anticipate that the monetary policy rate will remain steady in the business sector until at least the first quarter of 2026, with potential policy easing being considered post-Q1 2026.
