At the same time, the influence of net exports had probably continued to improve in that quarter, as the annual dynamics of exports of goods and services had seen the positive differential versus those of imports widen in July, posting a relatively more modest decline against the prior quarter.
Please read below the minutes of the monetary policy meeting of the Romanian central bank’s Board on October 8, released on Monday (October 20):
“The National Bank of Romania Board members present at the meeting: Mugur Isarescu, Chairman of the Board and Governor of the National Bank of Romania; Leonardo Badea, Vice Chairman of the Board and First Deputy Governor of the National Bank of Romania; Cosmin Marinescu, Board member and Deputy Governor of the National Bank of Romania; Aura-Gabriela Socol, Board member; Roberta-Alma Anastase, Board member; Csaba Bálint, Board member; Cristian Popa, Board member.
During the meeting, the Board discussed and adopted the monetary policy decision, based on the data and analyses on current and future macroeconomic, financial and monetary developments submitted by the specialised departments, as well as on other available domestic and external information.
Looking at the recent inflation developments, Board members pointed to the substantial increases in the annual inflation rate in the first two months of Q3/2025, causing the latter to rise to 9.85 percent in August, above the forecast, from 5.66 percent in June, given the expiry of the electricity price capping scheme on 1 July and the hike in VAT rates and excise duties as of 1 August, following the package of fiscal and budgetary measures adopted in July. It was noted that the transitory direct effects of the two successive supply-side inflationary shocks had affected primarily the aggregate dynamics of the exogenous CPI components, mainly via the particularly strong pick-up in electricity prices.
In turn, the annual adjusted CORE2 inflation rate had climbed faster than anticipated, reaching 7.9 percent in August from 5.7 percent in June, amid the significant increases over that period in the dynamics of all three sub-components of core inflation, markedly more pronounced for processed food and services, Board members remarked.
Following the assessments, it was concluded that VAT rate hikes had been extensively passed through to consumer prices, also amid the resilience of demand in certain segments and high short-term inflation expectations. In addition to the major, larger-than-expected impact of the increases in indirect taxes in August, the developments in core inflation also reflected the influences stemming further from the rise in some agri-food commodity prices and the still fast dynamics of wage costs, alongside the influences, visible during that period, from the indirect effects of higher electricity and fuel prices, Board members agreed.
In that context, reference was made to the further increases in the annual dynamics of industrial producer prices for consumer goods July through August, amid higher costs, but especially to the surge in firms’ and consumers’ short-term inflation expectations over the same period. It was, however, noted that financial analysts’ longer-term inflation expectations had seen a visible downward adjustment in September, after having remained for more than four quarters in the vicinity of the upper bound of the variation band of the target, whereas the dynamics of household real disposable income had declined markedly in June-July, mainly as a result of the rise in the inflation rate, staying, nevertheless, in positive territory.
As for the cyclical position of the economy, Board members showed that economic activity had witnessed a significantly swifter advance in Q2/2025, to 1.2 percent, after a slowdown to 0.1 percent in the previous three months, which made it likely for the aggregate demand deficit to have widened more modestly over that period compared to expectations.
Moreover, it was observed that annual GDP growth had halted its decrease in Q2/2025, remaining at 0.3 percent, although domestic demand had reported a steeper loss of momentum, given that the annual dynamics of gross fixed capital formation had slipped slightly back into negative territory after the surge in the previous quarter, while those of household consumption had declined further, albeit only marginally.
By contrast, net exports had diminished their contractionary impact considerably and more than expected in Q2/2025, Board members observed, pointing to the emerging divergence during that period between the further step-up in the annual dynamics of exports of goods and services and the notable decrease in those of imports, in terms of volume. The divergence had also led to a sharp slowdown in the annual growth rates of trade deficit and current account deficit, fuelled in the latter case also by an improvement in the secondary income balance, several Board members pointed out.
Looking at the labour market, Board members agreed that the current data confirmed a halt in the market easing in 2025 Q2 – given also the steady job vacancy rate –, sending out, alongside surveys, mixed signals on the probable developments in Q3/2025 and in the near future.
Thus, it was noted that, according to the incoming data, the number of employees economy-wide had continued to decline in June and July 2025, while the ILO unemployment rate had dropped mildly in July-August, after rising and staying at an average of 6.0 percent in Q1 and Q2 of 2025. Furthermore, it was observed that employment intentions over the very short horizon had recovered somewhat in September after plunging in July-August, but solely on account of developments in trade, and the labour shortage reported by companies had recorded an increase in Q3 as a whole, yet much smaller than the drop seen in the previous three months.
The annual growth rates of average nominal gross wage economy-wide and in the private sector, as well as that of the nominal unit labour cost in industry had continued to decline in July, relatively slowly in the former case, and more markedly in the latter, but remained elevated from the perspective of inflation, as well as of external competitiveness, Board members underlined, referring also to their high, double-digit levels reported until towards mid-Q2/2025.
Board members voiced concerns over the future developments in the mentioned indicators, in the context of high inflation rates and short-term inflation expectations, as well as amid the persistent mismatches between labour demand and supply in certain sectors, which could amplify again the pressures on wages and labour costs in the private sector in the future. However, opposite effects were expected from the package of budget consolidation measures already implemented, including the wage and employment policy measures in the public sector, as well as from the additional corrective measures and the associated uncertainties, likely to affect consumer demand, firms’ costs/profits and investments, Board members deemed. At the same time, it was reiterated that similar influences could arise from a potential escalation of global trade tensions, primarily through the effects exerted on the global economy and international trade, as well as from the US-EU trade agreement, but also from the rising resort by employers to non-EU workers and the expansion of automation and digitalisation.
Turning to financial conditions, Board members showed that the main interbank money market rates had gone down further August through September overall, yet at a slower pace, staying visibly above the April 2025 levels, while long-term yields on government securities had witnessed a small upward adjustment in mid-Q3 and had then tended to stick to the new readings. During the same period, the EUR/RON exchange rate had followed a relatively fluctuating course, amid the successive revisions of investor expectations on the outlook for the Fed’s policy rate, but also reflecting the steps taken domestically in the setup and adoption of the second package of corrective fiscal measures. In relation to the US dollar, the leu had weakened somewhat in August, but had strengthened afterwards, given the resumption of the former’s overall depreciation trend in the international financial market, Board members remarked.
From that perspective, Board members underlined again the importance of a consistent implementation of the fiscal and budgetary measures adopted or pending approval, conducive next year to a tightening of the fiscal adjustment initiated in 2025 and to a sizeable correction of the current account deficit. At the same time, reference was made to the present geopolitical conflicts and the global trade tensions, with potential repercussions on international financial market volatility and on investors’ risk perception towards the region, as well as on major central banks’ monetary policy stance.
The assessment also showed that the annual growth rate of credit to the private sector had remained on a downward path in the first two months of 2025 Q3, reaching 8.0 percent in August from 9.1 percent in June, primarily under the influence of the further slower increase in loans to non-financial corporations, exclusively on the back of the leu-denominated component. At the same time, the dynamics of credit to households had halted its advance, posting a decline during the two months overall, although the flow of leu-denominated consumer credit and that of housing loans in domestic currency had hit all-time highs in July, some members pointed out. The share of the leu component in credit to the private sector had narrowed in that period as well, to 69.3 percent in August from 69.7 percent in June.
As for future developments, Board members showed that, according to the new data and analyses, the annual inflation rate would reach a plateau at end-Q3 and decrease very slowly in the closing three months of the year, on a higher path than in the August medium-term forecast, which had seen it peak at 9.2 percent in September and stand at 8.8 percent in December 2025.
It was observed that the worsening of the near-term inflation outlook versus the August forecast was almost entirely attributable to supply-side factors/shocks, mainly to the transitory direct effects exerted by the expiry of the electricity price capping scheme on 1 July and the increases in VAT rates and excise duties starting 1 August, which had pushed considerably up and above expectations both the aggregate dynamics of exogenous CPI components and the core inflation dynamics.
The annual inflation rate stepping up and sticking to high values was a matter of concern in terms of the future behaviour of longer-term inflation expectations, given inter alia the sizeable and protracted deviation of the inflation dynamics from the variation band of the target in recent years, several Board members noted. They also mentioned the risks stemming from the possible stronger indirect effects of costlier fuels and utilities, as well as from the short-term developments in food and natural gas prices, especially in the context of applicable regulations.
However, Board members repeatedly underlined the nature of the shocks that had triggered the recent inflation bout, as well as the transitory nature of the direct inflationary effects exerted, which – once dissipated in Q3/2026 – would entail an abrupt downward correction of the annual inflation rate path. Such a correction was shown by the August 2025 medium-term forecast, which also indicated a subsequent decrease in the inflation dynamics to 3.0 percent in December 2026, some members pointed out.
At the same time, it was shown that the implementation of the package of fiscal and budgetary measures adopted in July 2025 was, overall, likely to entail increasingly stronger underlying disinflationary pressures over the longer horizon, especially from aggregate demand, mainly via the fiscal adjustment initiated in 2025 and probably tighter next year. To those would add, over the short term, the effects of the temporary decline in households’ purchasing power, under the impact of the annual inflation rate rising and sticking to high values, with implications for consumer demand in particular, Board members repeatedly remarked. It was unanimously deemed that, in such a context, the risk for the current inflation bout to affect medium-term inflation expectations and to thus generate second-round effects was significantly diminished, yet called for close scrutiny of all developments.
Underlying inflationary pressures would persist over the near-term horizon, albeit moderating, Board members concluded. They highlighted on one hand the prospects for the negative output gap to widen relatively quickly in 2025 H2, although to somewhat more modest values than previously forecasted, and on the other hand the time lag necessary for the disinflationary effects thus generated to become manifest, as well as the recent months’ still solid growth – albeit visibly decelerating – of unit wage costs in the private sector.
Looking at the near future of the cyclical position of the economy, Board members showed that the new assessments pointed to a near-stagnation of economic activity for 2025 H2 overall, amid the already implemented fiscal and budgetary measures and the high level of the annual inflation rate.
It was observed that the developments implied, however, a step-up in the annual GDP dynamics in Q3/2025, underpinned probably by gross fixed capital formation, but not by private consumption, as suggested by high-frequency indicators. At the same time, the influence of net exports had probably continued to improve in that quarter, as the annual dynamics of exports of goods and services had seen the positive differential versus those of imports widen in July, posting a relatively more modest decline against the prior quarter. Consequently, the trade deficit had contracted slightly compared to the same year-earlier period, while the current account deficit had narrowed markedly, due also to the positive developments in income balances, Board members remarked.
Uncertainties were further associated with the measures likely to be adopted in the future in order to keep the budget deficit on a sustainable downward path, in line with the National Medium-Term Fiscal-Structural Plan agreed with the European Commission, as well as with the excessive deficit procedure, according to Board members.
Moreover, it was shown that high uncertainties and risks to the outlook for economic activity, implicitly the medium-term inflation developments, continued to arise from the external environment, given the global trade tensions, as well as the war in Ukraine and the Middle East situation, but also the plans to increase defence and infrastructure investment spending in EU countries.
Board members insisted again on the importance of absorbing and making the most of EU funds, especially those under the Next Generation EU programme, essential at the current juncture for partly counterbalancing the contractionary effects of budget consolidation and of geopolitical and trade conflicts worldwide, for carrying out the necessary structural reforms, energy transition included, but also for enhancing the growth potential and strengthening the resilience of the Romanian economy.
Board members were of the unanimous opinion that the analysed context overall warranted a policy rate status-quo, with a view to ensuring and maintaining price stability over the medium term, in a manner conducive to achieving sustainable economic growth.
In addition, Board members reiterated the importance of further closely monitoring domestic and global developments so as to enable the NBR to tailor its available instruments in order to achieve the fundamental objective regarding medium-term price stability, while safeguarding financial stability.
Under the circumstances, the NBR Board unanimously decided to keep the monetary policy rate at 6.50 percent. Moreover, it decided to leave unchanged the lending (Lombard) facility rate at 7.50 percent and the deposit facility rate at 5.50 percent. Furthermore, the NBR Board unanimously decided to keep the existing levels of minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.”