The National Bank of Romania (BNR) revised upward the inflation projection for the end of 2024 to 4.9% in its updated Inflation Report, from its previous forecast of 4.0%. The inflation projection for the end of 2025 was raised to 3.5% from the previous 3.4%. 

The central bank added that the projected inflation trajectory doesn't include the effects of the fiscal and budgetary correction that the government will carry out at the beginning of 2025.

The balance of risks to the future evolution of the annual inflation rate is assessed to remain tilted to the upside, the report reads. The baseline scenario is built on the principle that fiscal measures are included in it only after their enactment into law or at least once they are due for enactment.

“Uncertainties continue to surround the economic impact of multiple and persistent geopolitical conflicts, as well as the future configuration of the fiscal consolidation package,” the central bank said. 

BNR Governor Mugur Isarescu cited the fiscal and external deficits that are around 8% of GDP and have to be adjusted. Some strategies, such as hiking the VAT rate, have a direct impact on inflation, he explained.

"We expect a coherent correction program. It means adapting domestic consumption to the level of production," said Isarescu. 

The monetary policy rate, at 6.5% at this moment, will be cut “when the inflation is decreasing “in a sustainable manner”, Isarescu said. In the short term, the inflation is expected to rise, driven by food prices, as the effects of the adverse weather are more visible in Romania compared to other countries in Europe, he added.

The BNR's monetary policy has already become more restrictive, after the inflation rate decreased in recent months, from 5.4% in July to 4.6% in September, argued Isarescu, who claims that the BNR's policy was countercyclical, while that "fiscal policy was rather expansive".

Incomes (wages) have a visible impact on inflation and on loan interest rates, the BNR governor stated as well.

"Consumer loans are correlated with income growth. Because otherwise we have no way to explain these developments at high interest rates of consumer credit. Quite active increases in consumer credit," said Isarescu.