Romania’s central bank, the National Bank of Romania (BNR), decided on November 8 to keep the monetary policy (chart) rate at 6.5%.

Faced with multiple sources of uncertainty and with the following monetary policy board meeting not until January 15, the BNR kept a cautious stance that was broadly expected by the market. 

The bank noted that inflation eased more slowly than anticipated and will follow a trajectory above that of the previous projections. It also outlined domestic (fiscal and income) and external (Ukraine, Middle East) risks.

The annual inflation rate fell to 4.62% y/y in September from 5.10% y/y in August. 

The central bank revised upward the inflation forecast and expects the headline inflation to enter the target band (2%+/-0.55) no sooner than early 2026. The updated Inflation Report will be published on November 11.

In Q3 2024 as a whole, the annual inflation rate continued to decline, albeit more slowly than in the previous three months, as well as compared to forecasts, the BNR noted. At the same time, the annual adjusted CORE2 inflation rate posted a slower downtrend in Q3, also compared with the forecast, reaching 5.6% in September from 5.7% in June.

The list of risks and uncertainties outlined by the BNR was longer than usual this time.

Significant uncertainties and risks stem from the future fiscal and income policy stance, given the fiscal-budgetary measures that might be implemented as of 2025 for budget consolidation purposes. Labour market conditions and wage dynamics in the economy also remain a source of uncertainties and risks. 

At the same time, sizeable uncertainties are further associated with developments in energy and food prices, as well as with the future evolution of crude oil prices amid geopolitical tensions.

Heightened uncertainties and risks to the outlook for economic activity, implicitly the medium-term inflation developments, arise from the war in Ukraine and the Middle East conflict, as well as from the economic performance in Europe and globally, in the context of escalating geopolitical tensions. 

Furthermore, the absorption and use of EU funds, especially those under the Next Generation EU programme, are conditional on fulfilling strict milestones and targets.