The annual inflation rate will pick up considerably in the following months, under the transitory impact of the expiry of the electricity price capping scheme and the increase in VAT rates and excise duties starting August 1, thus climbing well above the values indicated by the May 2025 forecast over the short time horizon, the National Bank of Romania (BNR) argues in its July 8 decision on keeping the monetary policy interest rate at 6.5%.
The move comes at a time of economic stagnation and rising risks of recession.
The main drivers for the central bank’s decision are likely not in the fiscal corrective package, which will generate a step-like rise in prices and longer-term disinflationary effects.
The annual inflation rate calculated based on the Harmonised Index of Consumer Prices (HICP – inflation indicator for the EU Member States) rose to 5.4% in May 2025 from 5.1% in March 2025, the BNR says.
The move came in line with the consensus expectations, which put the first rate cut sometime in 2026.
BNR’s decision addresses short-term concerns not necessarily limited to the fiscal measures approved by the government, which are expected to entail stronger underlying disinflationary pressures over the longer horizon, mainly via the effects exerted on aggregate demand.
Erste Research, in a note on BNR’s monetary policy decision, forecasts headline inflation at 7.5% by year-end, assuming a rather moderate increase in electricity prices in July of about 30%, 60% pass-through from VAT hikes, and 100% pass-through of the increase in excise duties.
Erste analysts see core inflation at 6.0% y/y at the end of 2025. Adjusted CORE2 inflation rate saw yet again a halt in its downward trend, going up to 5.4% in May from 5.2% in March.
iulian@romania-insider.com
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