NBR maintains key interest rate at 6.50% amid inflation rise to 9.85%

The central bank keeps monetary parameters unchanged The Romanian monetary authority announced on October 8, 2025, the decision to keep the reference interest rate unchanged at 6.50% annually. This decision comes in an economic context marked by strong increases in consumer prices. Alongside the key interest rate, other monetary policy instruments remained constant: the Lombard facility at 7.50% and the deposit facility at 5.50% per year. The minimum reserve requirements for banks, both in national currency and foreign currency, remain at current levels. Prices exploded in August The consumer price index marked a spectacular acceleration during the summer months. If in June inflation was at 5.66%, it jumped to 7.84% in July, and in August it reached the threshold of 9.85%. This sudden escalation exceeds economists' estimates and is based on two major causes: the removal of the electricity price cap from July 1 and the increase in indirect taxes from August. The increase in electricity prices was the most significant pressure factor on prices. Core inflation followed the same upward trajectory, rising from 5.7% in June to 7.9% in August. The increase in VAT and excises was almost entirely reflected in final consumer prices, fueled also by persistent demand in certain market segments and high inflationary expectations. The Romanian economy shows signs of recovery The second quarter of 2025 brought encouraging news on the economic growth front. The gross domestic product recorded a quarterly advance of 1.2%, after the progress in the first three months of the year was only 0.1%. Compared to the same period of the previous year, the economy stagnated at a growth of 0.3%, but the quarterly evolution suggests stabilization. The economic dynamics were mainly supported by the performance of exports, which grew faster than imports. This change contributed to the improvement of external deficits. However, population consumption and investments continued to be weak, with domestic demand maintaining its downward trend. External deficits improve A positive aspect of recent developments is the reduction of trade imbalances. The growth rate of the trade balance deficit slowed in the second quarter, and the current account deficit followed the same favorable trend. Exports of goods and services outperformed imports, creating the premises for a gradual correction of accumulated imbalances. The labor market undergoes adjustments The employment sector reflects current economic uncertainties. The number of employees in the economy decreased during the summer months, while the unemployment rate remained relatively stable around 6%. Wage growth continued to slow, and labor costs recorded declines in the industry, although they remain at high levels. Financial markets and exchange rate Interbank market interest rates slightly decreased in the last two months but remain above spring values. The leu experienced moderate fluctuations against the euro, influenced by expectations related to US monetary policy and internal fiscal measures. Against the dollar, the national currency depreciated in August but later regained lost ground. Private lending loses momentum The growth rate of loans granted to companies and the population slowed in August, reaching 8% annually, from 9.1% in June. The slowdown was mainly due to a decrease in lei loans to companies. The share of loans in national currency in total lending continued to decline, reaching 69.3%. Short-term inflation outlook Central bank analysts anticipate that inflation will reach a plateau towards the end of the third quarter and will begin to decrease very slowly in the coming months. The effects of the inflationary shocks from the summer will persist in the short term, but fiscal consolidation measures will generate disinflationary pressures in the medium term. The budgetary adjustment in 2025, which will likely continue in 2026, will temper aggregate demand and contribute to price normalization. Significant external risks The international context remains complex and unpredictable. Global trade tensions, the conflict in Ukraine, and instability in the Middle East are major sources of uncertainty. Plans to increase military and infrastructure spending in the European Union will also influence the Romanian economy. In this framework, the absorption of European funds, especially from the Next Generation EU program, becomes essential to counterbalance the negative effects of fiscal consolidation. The central bank's strategy for stability The decision to maintain interest rates reflects the monetary authority's commitment to ensuring price stability in the medium term, thus contributing to sustainable economic growth. The National Bank emphasizes the need for a balanced mix of economic policies and the implementation of structural reforms to strengthen the resilience of the Romanian economy. The institution continuously monitors internal and external developments and is prepared to adjust monetary instruments to achieve the set objectives. source: https://www.bnr.ro/24906-2025-10-08-hotararile-ca-al-bnr-pe-probleme-de-politica-monetara