Romania keeps monetary rate at 6.5% as it expects price shock

Romania’s central bank on August 8 announced it has maintained the monetary policy rate at 6.5% given the already higher-than-expected inflation in June, but particularly the expected price shock prompted by the electricity price in July, following the market liberalisation, and the VAT rate hike. Accordingly, the inflation will surge “markedly” in Q3, but will witness a steep downward correction in 2026 Q3, according to the revised inflation forecast to be unveiled on August 12.

Neither the policy decision nor the announced revision of the projected inflation trajectory came as a surprise. 

Erste Group expects headline inflation at 7.5% at the end of 2025 but only 3.7% one year later. Such projections imply expectations for a 4.3% rise in consumer prices in H2, largely due to higher electricity prices, excise duties, and VAT rates. 

Given the projected inflation trajectory, the financial group’s analysts see a policy rate cut no sooner than February 2026, when the clarity on inflation would improve, and only if a high degree of confidence that inflation would reach the target range over the policy horizon is reached. 

The uncertainties mentioned by the National Bank of Romania (BNR) in its August 8 monetary policy brief, of domestic and external nature, are predominantly in favour of deferred monetary easing. 

On the other hand, BNR notes the economy has stagnated in Q2. Besides the uncertain outlook for the coming quarters brought over by the first fiscal consolidation package, this should, in principle, encourage the central bank to adopt a more stimulative conduct.

The government’s policies under the 7-year plan to bring the public deficit under control will significantly impact the central bank’s policy directly and indirectly. Under these circumstances, BNR can only encourage the executive to grasp the opportunities created by the EU funds and strengthen macroeconomic stability.

The BNR Board reiterates that, at the current juncture, the balanced macroeconomic policy mix and the implementation of structural reforms, also by using EU funds to foster the growth potential over the long term, are of the essence in preserving a stable macroeconomic framework and strengthening the capacity of the Romanian economy to withstand adverse developments.

iulian@romania-insider.com

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