Romania’s central bank (BNR) on November 12 decided to keep the monetary policy rate at 6.5%, in line with the consensus expectations. It has also updated the Inflation Forecast, anticipating a widening aggregate demand deficit with an impact on the disinflation trajectory, particularly after the end of September 2026, when the transitory inflation episode subsides.
According to the forecast included in the report, the annual inflation rate will witness a modest decline in the following three quarters, on a fluctuating path significantly higher than that in the previous projection, amid the above-expectations transitory direct effects exerted by the expiry of the electricity price capping scheme on July 1 and by the increases in VAT rates and excise duties starting August 1.
However, the indicator will see a steep downward correction in 2026 Q3, with the fading of the direct effects of the two supply-side shocks, and thereafter it will resume its decrease – yet at a slower-than-previously-envisaged pace and from a relatively higher level –, re-entering in 2027 Q1 and falling slightly into the variation band of the target until the end of the projection horizon, amid stronger disinflationary pressures from the aggregate demand deficit.
The latter is anticipated to widen somewhat more markedly than in the previous projection, given the packages of corrective fiscal and budgetary measures implemented as of August 2025.
In line with the expected trajectory of inflation, consensus expectations indicate possible rate cuts in H1 next year and a significant overall monetary ease during the entire 2026.
Erste Group, in a research note on BNR’s monetary policy decision, said it expected the monetary policy rate to be at 5.25% by the end of next year.
The central bank is likely to wait and see the effects of the elimination of the remaining price caps on natural gas prices and basic food items markups before making a move, the note reads. In this case, the first cut will likely take place at the May meeting. Erste Group sees 125bp of easing, starting in May, to 5.25% by end-2026.
The inflation behaviour remains the most important factor for this to materialise. The fiscal side is likely to favour rate cuts earlier in the year. If the degree of confidence regarding the return of inflation within the target band is reasonably high, we could see the first rate cut as early as February.
iulian@romania-insider.com
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