Romania Interest Rate

Central Bank stands pat in August

Interest rates remain at highest level in the EU in August: At its meeting on 10 August, the National Bank of Romania (NBR) maintained its restrictive policy stance, keeping the NBR reference rate at 6.50%—the highest in the EU. The hold was the 16th consecutive and had been widely expected by markets.

Weak economy dissuades a hike, while soaring inflation prevents a cut: The NBR stood pat as price pressures remained too strong to justify a cut, and as the economy in Q2 remained too weak to justify another hike. The Bank also refrained from cutting rates due to uncertainty surrounding exchange rate fluctuations, global energy prices, fiscal policy and geopolitical tensions. Regarding price pressures, annual headline inflation reached 10.4% in June, still far above the Central Bank’s 2.5% target.

NBR seen remaining on hold ahead: The NBR did not provide explicit forward guidance on future interest rate moves. Most panelists expect the Bank to keep rates unchanged through year-end. A minority sees scope for cuts, with inflation set to decline substantially in Q3 as the effects of the VAT and excise-tax increases, as well as the removal of the electricity-price cap, fade. The outlook remains dependent on the pace of disinflation, with energy price volatility, fiscal policy uncertainty, leu depreciation and geopolitical instability posing upside risks to the policy rate. At the same time, a weaker-than-expected economy could strengthen the case for easing. The Bank is scheduled to reconvene on 8 October.

Panelist insight: EIU analysts commented: “We expect inflation to ease substantially in the third quarter—but remain elevated above the NBR's target range (2.5% with a tolerance band of ±1 percentage point)—as base effects from the electricity price-capping scheme fade. With this in prospect, we expect the NBR to keep the main policy rate on hold at 6.5% until 2027.”

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