Romania: National Bank of Romania leaves rates unchanged in January
Third consecutive hold meets expectations: At its first meeting of 2025 on 15 January, the National Bank of Romania (NBR) decided to maintain the monetary policy rate at 6.50%, the lending (Lombard) facility rate at 7.50% and the deposit facility rate at 5.50%. The decision marked the third consecutive hold and had largely been anticipated by market analysts.
Higher-than-expected inflation drives decision: The Central Bank’s decision stemmed from higher-than-expected inflation in Q4 2024 amid a stronger USD and severe drought denting crop yields. Moreover, the NBR hiked its Q1 2025 inflation forecasts, though it still expects price pressures to ease from current levels. Additionally, the Bank noted that rising uncertainty on the fiscal side—amid the European Commission’s excessive deficit procedure—and on the geopolitical stage could hamper economic growth, further dissuading it from loosening its stance.
Easing cycle likely to resume in Q2 2025: The Bank’s communiqué was void of explicit forward guidance. However, given heightened uncertainty in the growth outlook and our Consensus for inflation broadly in line with the Bank’s forecasts, the majority of our panelists expect the easing cycle to resume in Q2 or Q3 2025. Our Consensus is for cumulative rate cuts ranging from 25 to 175 basis points through the end of 2025.
The Bank will reconvene on 14 February 2025.
Panelist insight: ING’s Stefan Posea and Valentin Tataru commented:
“Overall, we now expect only 50bp of rate cuts in 2025, scheduled for the second half of the year, taking the key rate to 6.0%. We believe the Bank will wait for more clarity on the inflation and fiscal outlook before continuing its cautious easing cycle.”
Commenting on risks to the outlook, Vlad Ionita, analyst at Erste Bank, said:
“We expect NBR to resume cutting rates in August. […] Weaker than expected domestic economic growth and market expectations for frontloaded rate cuts by the ECB and some regional central banks could be arguments for the doves. In the decision-making process, these dovish calls are likely to be strongly outweighed by the ongoing fiscal concerns, increased FX vulnerability due to elevated risk premia and sovereign rating risks, high and mostly upside inflation forecast uncertainties, while fast wage growth and strong consumer lending expansion continue to fuel household consumption.”