NBR Maintains 6.5% Policy Rate as Inflation Forecast Revised Upwar
In its meeting of 8 August 2025, the Board of the National Bank of Romania decided the following:
The annual inflation rate continued to increase in June 2025, going up to 5.66 percent from 5.45 percent in May, amid further hikes in food and fuel prices, which outweighed in terms of impact the drop in electricity and natural gas prices.
Thus, in 2025 Q2 as a whole, the 12-month inflation rate went up more than expected, from 4.86 percent in March, under the influence of higher food prices, especially fruit prices – inter alia amid the unfavourable weather conditions in the region -, whereas the new advance posted during this period by the dynamics of energy prices was more than offset by the opposite evolution in the tobacco product segment.
In turn, the annual adjusted CORE2 inflation rate stopped yet again its downward trend in 2025 Q2, rising to 5.7 percent in June from 5.2 percent in March. The upswing was driven by the step-up in some agri-food commodity prices and the gradual pass-through of higher wage costs to some consumer prices, as well as by the increases in short-term inflation expectations and in the EUR/RON exchange rate, the impact of which was to a small extent mitigated by disinflationary base effects and the downward trend in import price dynamics.
The annual inflation rate calculated based on the Harmonised Index of Consumer Prices (HICP – inflation indicator for EU Member States) rose to 5.8 percent in June 2025 from 5.1 percent in March 2025. The average annual CPI inflation rate stood at 5.1 percent in June, the same level as in March 2025, while the average annual HICP inflation rate edged down to 5.3 percent in June, from 5.4 percent in March 2025.
The new statistical data reconfirm the standstill in economic activity in 2025 Q1, after a 0.5 percent expansion in the previous quarter, as well as the decline in its annual dynamics to 0.3 percent from 0.5 percent in 2024 Q4.
The decrease was entirely driven by domestic demand, whose rate of change saw a slight drop, given that the annual growth of household consumption posted a sudden slowdown, while the annual dynamics of gross fixed capital formation witnessed a notable surge and made a strong return to positive territory, after their plunge into negative territory in the previous quarter.
Net exports exerted a somewhat lower contractionary impact in 2025 Q1, given the faster advance, against the previous quarter, in the annual dynamics of the export volume of goods and services compared to those of the import volume, which implied a narrowing of the negative gap between the two components. However, the annual growth rate of trade deficit re-accelerated in 2025 Q1, amid relatively weaker terms of trade, while the current account deficit continued to report a very fast year-on-year pace of increase.
The latest data and analyses point to subdued quarterly economic growth in 2025 Q2, amid mixed developments across the aggregate demand components and major sectors compared to the same year-ago period.
Thus, in April-May 2025, the annual growth rate of retail sales continued to slow down, while services to households more than reversed the decline seen in the previous quarter. The annual dynamics of the volume of construction works fell steeply but remained in positive territory after the notable surge in 2025 Q1, while the industrial output displayed a significantly slower year-on-year contraction. At the same time, the annual rate of change of exports of goods and services exceeded marginally that of imports April through May 2025, amid the latter’s much more pronounced decrease against 2025 Q1. Consequently, the annual growth rate of trade deficit almost stopped, while that of current account deficit halved.
Looking at the labour market, the incoming data show both decreases in the number of employees economy-wide in April and May and a drop in the ILO unemployment rate for 2025 Q2 overall, after rising to 6.0 percent in Q1. The annual growth rate of average nominal gross wage economy-wide continued to decline slowly in the first two months of 2025 Q2, while that of nominal unit wage costs in industry corrected only part of the surge in 2025 Q1, both thus remaining in double-digit territory. July 2025 surveys point, however, to a sharp, across-the-board decline in employment intentions over the very short horizon in major sectors, as well as to a renewed contraction in labour shortage reported by companies.
Financial market conditions strengthened their normalisation trend in July 2025, amid the completion and adoption of the first package of corrective fiscal measures, which improved financial investors’ expectations on the prospects of budget consolidation. Specifically, the main interbank money market rates accelerated their downward adjustment, remaining however visibly above April levels, while long-term yields on government securities continued their decline in the first part of the month, falling to and remaining thereafter at levels below those seen at the end of last year. Moreover, the EUR/RON exchange rate halted its rise in early July and, after fluctuating somewhat, tended to stabilise at the new levels. Against the US dollar, the leu discontinued its appreciation trend and in the last 10-day period of July it weakened relatively abruptly, given the sharp appreciation of the US currency in international financial markets.
The annual growth rate of credit to the private sector lost momentum in June 2025, reaching 9.1 percent from 9.7 percent in May, amid the significant decline in the brisk tempo of leu-denominated loans, solely on the back of loans to non-financial corporations, which was only slightly dampened in terms of impact by the re-acceleration of growth in foreign currency-denominated credit. The share of the domestic currency component in credit to the private sector thus continued to narrow mildly, to 69.7 percent in June from 69.8 percent in May.
In today’s meeting, the NBR Board examined and approved the August 2025 Inflation Report, which incorporates the latest available data and information.
According to the forecast included in the Report, the annual inflation rate will surge markedly in 2025 Q3, under the transitory impact of the expiry of the electricity price capping scheme and the increase in VAT rates and excise duties starting 1 August, while in the following three quarters it will come down relatively slowly, on a fluctuating path considerably higher than that in the previous projection. However, the indicator will witness a steep downward correction in 2026 Q3, once the direct inflationary impact of the two supply-side shocks has faded out, and thereafter it will decrease gradually, re-entering and falling deeper into the variation band of the target towards the end of the projection horizon, amid stronger disinflationary pressures from the aggregate demand deficit that is anticipated to widen much faster than in the previous projection, given the fiscal adjustment packages implemented as from August 2025.
Uncertainties are, nevertheless, further associated with the measures likely to be adopted in the future in order to continue budget consolidation in line with the National Medium-Term Fiscal-Structural Plan agreed with the European Commission and with the excessive deficit procedure.
High uncertainties and risks to the outlook for economic activity, implicitly the medium-term inflation developments, continue to arise from the external environment, given the war in Ukraine and the Middle East situation, but especially amid the global trade tensions, affecting the developments in the global economy and in international trade, as well as amid the potential effects generated by the US-EU trade agreement.
At this juncture, the full absorption and use of EU funds, especially those under the Next Generation EU programme, are essential for partly counterbalancing the contractionary effects of budget consolidation and of geopolitical/trade conflicts, as well as for carrying out the necessary structural reforms, energy transition included.
The ECB’s and the Fed’s monetary policy decisions, as well as the stance of central banks in the region, are also relevant.
Based on the currently available data and assessments, as well as in light of the elevated uncertainty, the NBR Board decided in the meeting held today, 8 August 2025, to keep the monetary policy rate at 6.50 percent per annum. Moreover, it decided to leave unchanged the lending (Lombard) facility rate at 7.50 percent per annum and the deposit facility rate at 5.50 percent per annum. Furthermore, the NBR Board decided to maintain the existing levels of minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.
The NBR Board decisions aim to ensure and maintain price stability over the medium term, in a manner conducive to achieving sustainable economic growth. The NBR Board reiterates that, at the current juncture, the balanced macroeconomic policy mix and the implementation of structural reforms, also by using EU funds to foster the growth potential over the long term, are of the essence in preserving a stable macroeconomic framework and strengthening the capacity of the Romanian economy to withstand adverse developments.
The NBR closely monitors developments in the domestic and international environment and stands ready to use the tools at its disposal in order to achieve the fundamental objective regarding medium-term price stability, while safeguarding financial stability.
The new quarterly Inflation Report will be presented to the public in a press conference on 12 August 2025 at 11:00 a.m. The account (minutes) of discussions underlying the adoption of the monetary policy decision during today’s meeting will be posted on the NBR’s website on 21 August 2025 at 3:00 p.m.
The next monetary policy meeting of the NBR Board will be held on 8 October 2025.source http://www.bnr.ro
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