Interest rates maintained at 6.5% in Romania, with predictions of significant inflation increase forthcoming.
Romania's inflation rate is expected to rise in the coming months, according to the latest forecast by Erste Research. The predicted annual inflation rate for the end of 2025 is now 7.5%, an increase from the earlier forecast of 5.6%.
The updated forecast reflects expectations of a moderate increase in electricity prices and other factors such as VAT and excise duty increases. Erste Research predicts a 100% pass-through of the increase in excise duties and a 60% pass-through from VAT hikes.
The economy is experiencing stagnation and rising risks of recession, which is contributing to the inflationary pressures. The inflation rate increase is not part of the longer-term disinflationary effects of the fiscal corrective package.
The adjusted CORE2 inflation rate, a measure that shows inflation excluding certain volatile components and indirect taxes, went up to 5.4% in May from 5.2% in March. The adjusted CORE2 inflation rate has halted its downward trend, indicating that inflationary pressures are not limited to just the headline inflation rate.
The annual inflation rate, calculated based on the Harmonized Index of Consumer Prices (HICP), was 5.4% in May 2025, up from 5.1% in March 2025. This increase is due to the expiry of the electricity price capping scheme, the increase in VAT rates, and excise duties starting August 1.
Despite the rising inflation rates, the National Bank of Romania (BNR) has kept the monetary policy interest rate at 6.5% in its July 8 decision. The decision was in line with the consensus expectations. The first rate cut is expected to occur sometime in 2026, according to consensus expectations.
Erste analysts see core inflation at 6.0% y/y at the end of 2025. The inflation rate will exceed the values indicated by the May 2025 forecast over the short time horizon.
The BNR's decision is not solely based on the fiscal measures approved by the government, as the central bank is responsible for maintaining price stability in the country. The central bank will continue to monitor economic developments closely and adjust its monetary policy as necessary to ensure price stability.
In conclusion, Romania is facing rising inflation rates due to a combination of factors, including stagnating economic growth, moderate increases in electricity prices, and VAT and excise duty increases. The BNR has kept the interest rate steady for now, but further adjustments may be necessary in the future to address these inflationary pressures.
Businesses may find it challenging to manage their finances effectively due to the rising inflation rates in Romania, as predicted by Erste Research. The increased prices of electricity, VAT, and excise duties are expected to impact investing decisions, potentially slowing down economic growth.
