The National Bank of Romania (BNR) has revised its inflation forecast down from 4.9% to 4% for the end of this year, and from 3.5% to 3.4% for the end of 2025, expecting to fall within the target corridor due to recent more favorable price developments than previously anticipated. Governor Mugur Isărescu warns of economic risks and uncertainties, stating that there is no talk of monetary policy easing—despite a 0.5 pp reduction in the key rate—while the budget deficit remains high.
Inflation fell below 5% in June and has recently been below both the BNR’s key rate, which had been 7% annually until recently, and the deposit facility rate that has influenced market trends for over a year and a half.
“The forecast doesn’t look bad! But the text of the recent communiqués and the report of more than 100 pages are full of two words: risks, uncertainties, risks, uncertainties! We do not venture beyond this forecast to say much about what we will do in the future because we remain in the same paradigm, dependent on what is happening, seeing and doing, dependent on date. Besides, autumn and the election campaign are coming, there are many uncertainties”, central bank governor pointed out.
Mugur Isărescu explained that the BNR avoided using the term monetary policy relaxation in the communiques published after the meetings in July and August, when it reduced the key rate by 0.25 percentage points, to 6.5% per year. “We are not using the idea that we have started a monetary policy easing cycle, nor are we using the term ‘monetary policy easing’,” he said.
“We have an expansionary fiscal policy. We are not excessively stimulating the economy; the fiscal policy is doing enough. High budget deficits (3.5% of GDP over six months, compared to an annual target of 5%) keep Romania’s borrowing costs and risk premiums high, the latter being the highest in the region. Regarding the fiscal outlook, we clearly don’t know what policies will be implemented, so this trajectory is tied to the future of fiscal policies,” BNR governor further explained.
Isărescu warned though that the inflationary pressures coming from the increase in wages and the fact that the increase in wages is fueled only to a small extent by productivity gains.
“In the case of services, salaries have a greater weight and productivity increases cannot be very high. So we expect services to keep inflation relatively higher in Romania, as long as the real convergence works”, added the governor.