The NBR has kept its policy rate unchanged through the first four meetings of 2025, following the 50bp cuts implemented in July-August 2024. In addition to the usual concerns, such as the high fiscal deficit, persistent wage growth, and sticky inflation, this year also brought a significant risk-off episode in Romanian financial markets.
Political uncertainty between the two electoral rounds triggered notable capital outflows, driven by fears of reduced EU fund inflows, increased sovereign rating risks, and broader concerns about policy continuity. Governor Mugur Isărescu confirmed that the NBR intervened with more than €6bn to stabilise the currency.
While pressures have eased following the second electoral round, policy uncertainty remains elevated, and monetary conditions are still tighter than earlier in the year.
Regarding interbank liquidity, policymakers appear to be gradually steering conditions toward a modest surplus, which could be much better controlled if future tensions arise again in the market. This process is expected to unfold in stages. After a recent liquidity injection of RON13.5bn at the key rate, market rates have remained tight, though lower than during the peak of market stress. Further injections are likely, but the pace and volume will depend on risks related to fiscal uncertainty and EU fund inflows. For now, bringing market rates closer to the deposit facility seems unlikely unless sovereign risk perceptions improve significantly.
In the FX market, the NBR is expected to maintain a firm grip on the leu. From the current range of 5.04–5.07, we anticipate a gradual depreciation to 5.10 by end-2025 and toward 5.18 by end-2026. Under normal market conditions and with improved EU fund inflows, a sharper depreciation would likely be unacceptable to policymakers at this stage.
On the inflation front, the combination of a weaker leu and higher electricity bills could add 0.7 to 1.0 percentage points to inflation in the short term. A potential increase in the tax burden – particularly a VAT hike – remains a key risk to monitor. Otherwise, growth concerns are likely to dominate, supporting some disinflationary pressure. Additionally, recent favourable weather conditions may help stabilise food prices, particularly for agricultural products.
All things considered, the current environment presents upside risks for both interest rates and inflation. Our base case remains that inflation will end the year at 5.0%, and that the NBR will implement a mild 50bp rate cut in October–November, provided inflation expectations stabilise and global monetary easing (from the Federal Reserve, European Central Bank, and National Bank of Poland) creates sufficient policy space. However, the risk of postponing rate cuts into 2026 remains very much alive, given the multiple and simultaneous upside risks in play.