The National Bank of Romania (BNR) decided to maintain its key interest rate at 6.5% during its meeting on May 16, in line with broad market expectations. The decision comes amid persistent inflationary pressures, heightened fiscal risks, and increased political uncertainty.

Core inflation (CORE2) remained at 5.3% year-on-year in March and April, signalling ongoing price pressures that led the BNR to revise its inflation outlook upward. The central bank now forecasts annual consumer price inflation at 3.8% by the end of 2025, with inflation expected to fall only marginally below the upper limit of its target band in the first quarter of 2026.

The updated forecast, to be officially released on May 20 in the quarterly Inflation Report, reflects a higher-than-anticipated consumer price index trajectory during the first four months of the year.

Analysts at Erste Bank Group noted that, while the current environment may justify rate stability, a shift could occur if economic growth remains weak and the monetary policies of the European Central Bank and regional peers become more accommodative. However, they cautioned that fiscal concerns, increased foreign exchange market vulnerabilities, and sovereign credit risks could delay any easing cycle.

Erste Bank Group projects year-end inflation at 4.0% under the assumption of unchanged fiscal policy.

In its statement following the rate decision, the BNR also warned of the negative effects of ongoing political instability on Romania’s financial markets. The central bank noted that prolonged electoral tensions have triggered significant capital outflows, which have strained liquidity, increased money market rates, and affected both the country’s foreign exchange reserves and the Romanian leu.

These developments are contributing to uncertainty in the economic outlook, with the BNR signalling a cautious approach as it balances inflation control with risks to financial stability. Markets currently expect no rate cuts before autumn, although that timing remains subject to shifts in both domestic policy and external economic conditions.