National Bank of Romania stands pat in February

Hold matches expectations: At its meeting on 14 February, the National Bank of Romania decided to maintain its monetary policy rate at 6.50%, its lending (Lombard) facility rate at 7.50% and its deposit facility rate at 5.50%. The decision marked the fourth consecutive hold and had been priced in by both the market and our panelists.

Higher-than-anticipated price pressures drive decision: The Central Bank's decision to stand pat rather than cut came on the back of an upside surprise in inflation in the last three months of 2024 amid accelerating fuel and food prices; the latter were fanned by severe drought in the summer. Moreover, the NBR forecasts inflation to be highly volatile in H1 2025 and to remain above the 1.5–3.5% target through H2. That said, the Bank noted that rising fiscal uncertainty—amid the European Commission's excessive deficit procedure—and the increasingly unstable geopolitical scenario could hamper economic growth.

Uncertainty looms regarding future decisions: The NBR provided no explicit forward guidance. However, the ECB’s easing cycle and the heightened risk of weaker economic performance amid fiscal consolidation have pushed our panelists to forecast around 75 basis points of additional rate cuts in 2025. That said, the spread is large at 25–175 basis points and, given the high level of uncertainty surrounding the domestic and international political scenario, roughly half of our panelists expect the easing cycle to be delayed to H2. The Bank will reconvene on 7 April.

Panelist insight: Commenting on the outlook, ING’s Stefan Posea and Valentin Tataru stated: “We continue to expect two rate cuts amounting to 50bp from the NBR this year but starting from the second half of the year at the earliest. […] Overall, we think that even if the Bank’s negative scenarios on private consumption and aggregate demand were to materialise, as long as fiscal uncertainty persists, the bar for further rate cuts will remain quite high.” Ioana Birlan, analyst at Erste Bank, has a hawkish view: “Weaker growth numbers and market expectations for the ECB rate path could be arguments for the doves at the next meetings. In the decision-making process, these dovish calls are likely to be outweighed by fiscal concerns, increased FX vulnerability due to elevated risk premia and sovereign rating risks, as well as high and mostly upside inflation forecast uncertainties.”

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