The National Bank of Romania (BNR) left its benchmark interest rate at 6.5% on Wednesday (Jan. 15), aligning with market expectations. It’s the third time in a row that policymakers opted to leave the rate unchanged amid ongoing political turbulence and inconsistent inflation slowdown.
Romania’s annual inflation rate stood at 5.1% in December 2024, remaining at its highest level since August and exceeding the central bank’s forecast. Romania had the highest annual inflation rate, of 5.4%, among European Union Member States, in November 2024, data from Eurostat showed last month.
The central bank noted that inflation has risen more than expected through the last quarter of 2024 due to higher fuel prices – primarily as a result of the significant appreciation of the US dollar on the international financial market –and to a small extent by the new increases in food prices, amid the severe drought in the summer of 2024 and the hike in some commodity prices
The central bank anticipates that inflation will decrease during the first quarter, though it is expected to follow a path that is higher than previously predicted. The decrease will result primarily from sizeable base effects and the deceleration in import price growth, yet amid the persistence of opposite effects exerted on food and energy price dynamics by the 2024 unfavourable weather conditions and by the increase in some commodity prices, as well as by the higher energy consumption over the winter months, BNR said.
The central bank highlighted that considerable uncertainties and risks are emerging from the future fiscal and income policy stance, given the implementation at the onset of 2025 of the package of fiscal-budgetary measures approved recently for budget consolidation purposes in the context of the National Medium-Term Fiscal-Structural Plan agreed with the European Commission and of the excessive deficit procedure.
The government’s intention to decrease the budget deficit to approximately 7% of the economic output this year from 8.6% in 2024 could lead to tax increases in the upcoming months, contributing to inflationary pressures.
Labour market conditions and wage dynamics in the economy also remain a source of uncertainties and risks, according to BNR. At the same time, significant uncertainties are further associated with developments in energy and food prices, as well as with the future path of crude oil prices amid geopolitical tensions.
The ECB’s and the Fed’s monetary policy decisions, as well as the stance of central banks in the region, are also relevant, BNR said. The next monetary policy meeting of the NBR Board will be held on 14 February 2025.