Minutes of the monetary policy meeting of the National Bank of Romania Board on 8 July 2025

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; Florin Georgescu, Board member and 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 showed that the annual inflation rate had increased in the first two months of 2025 Q2 overall, relatively in line with forecasts, to reach 5.45 percent in May, from 4.86 percent in March, amid a further faster rise in food and energy prices, which had outweighed considerably, in terms of impact, the new decreases in the dynamics of fuel and tobacco product prices, as well as of the non-food sub-component of core inflation.   In turn, the annual adjusted CORE2 inflation rate had seen yet again a halt in its downward trend, going up to 5.4 percent in May, from 5.2 percent in March, given that the further acceleration in the dynamics of processed food prices had been accompanied by the step-up in the growth rate of services prices – after a six-quarter decrease – and by slower disinflation in the non-food segment, Board members pointed out.   Following the assessment, it was concluded that disinflationary base effects and the slowdown in import price dynamics had continued to have small downward contributions to core inflation over that period, being however more than offset by the influences stemming from the hike in some agri-food commodity prices and the gradual pass-through of high wage costs to some consumer prices, as well as from the pick-up in short-term inflation expectations and the increase in the EUR/RON exchange rate.   In that context, Board members pointed to the further advance posted by the annual dynamics of industrial producer prices for consumer goods April through May 2025 – amid higher costs –, but especially to firms’ and consumers’ high short-term inflation expectations, which had continued to rise in 2025 Q2. At the same time, it was noted that financial analysts’ longer-term inflation expectations had witnessed only a small downward adjustment in mid-Q2 and had remained marginally below the upper bound of the variation band of the target in June, whereas the dynamics of household real disposable income had declined significantly in the first four months of 2025 overall, yet from a double-digit level in 2024 Q4 and owing inter alia to a significant unfavourable base effect visible in April.   As for the cyclical position of the economy, Board members showed that economic activity had stalled in 2025 Q1, after having added 0.5 percent in the previous three months, which made it likely for the negative output gap to open more visibly over that period compared to May expectations.   At the same time, the annual GDP growth rate had declined further in 2025 Q1, to 0.3 percent from 0.5 percent in 2024 Q4, but domestic demand had continued to see a swifter increase in annual terms, mainly on account of the dynamics of gross fixed capital formation, which had surged, making a strong return into positive territory, whereas household consumption had posted a notably slower rise, but had remained the main driver of GDP advance, Board members remarked.   By contrast, in 2025 Q1 net exports had exerted again a significantly larger contractionary impact, given the further widening of the negative differential between the annual dynamics of exports of goods and services, in terms of volume, and those of imports, amid the latter advancing more visibly versus the previous quarter. Consequently, the annual growth rate of trade deficit had posted a strong re-acceleration, while the current account deficit had continued to record a fast year-on-year pace of increase, Board members pointed out.   Looking at the labour market, Board members noted that the current data revealed an easing of market tensions in 2025 Q1 – given also the fall in the job vacancy rate over that period –, sending out, however, alongside surveys, mixed signals on the probable developments in 2025 Q2 and in the near future. Thus, it was observed that, according to the incoming data, the number of employees economy-wide had decreased in March and April 2025, while the ILO unemployment rate had diminished in April-May 2025 overall, after its rise to 6.0 percent in Q1. Furthermore, in Q2 employment intentions over the very short horizon had stayed, on average, at the higher level seen in the previous three months, whereas the labour shortage reported by companies had shrunk significantly.   Nevertheless, the growth rates of wages and wage costs continued to be high from the perspective of inflation but also of external competitiveness, Board members deemed, pointing out that the annual dynamics of gross wage had recorded a slower decline in the first four months of 2025, remaining in the double-digit range – inter alia, amid the hike in the economy-wide gross minimum wage and the partial compensation by employers of the impact exerted by the removal of some tax breaks –, while those of unit labour costs in industry had posted successive surges in Q1 and April, going up to 21.8 percent after having dropped considerably in the final quarter of 2024.   It was deemed that the persistent mismatches between labour demand and supply in certain sectors could continue to fuel pressures on wages and labour costs in the private sector, especially amid the recent and anticipated developments in inflation and short-term inflation expectations.   However, opposite effects were expected from the recently adopted package of fiscal and budgetary measures, including the wage and employment policy measures in the public sector, likely to affect consumer demand, as well as firms’ costs/profits, with implications for investments as well, Board members showed. Influences in the same direction could stem from a possible re-escalation of trade tensions worldwide, primarily through the effects exerted on the global economy and international trade, several Board members underlined. Moreover, the implications of a rising resort to non-EU employees and of expanding digitalisation and automation were deemed to be relevant.   Turning to financial market conditions, Board members observed that they had tended to normalise after the end of the electoral calendar, amid the defusing of tensions in the domestic political landscape and the headway in talks over the new ruling coalition and the setup of the package of corrective fiscal measures, conducive to the alleviation of financial investor concerns about budget consolidation prospects.   Thus, the main interbank money market rates had witnessed mild declines in the second half of Q2, staying however significantly above the April levels, while long-term yields on government securities had corrected relatively quickly and fully the abrupt increases seen in the first 10-day period of May. Moreover, the EUR/RON exchange rate had embarked on a downward path, which had then steepened slightly, before reverting in the second part of June to values close to those recorded towards the end of the previous month. In relation to the US dollar, the leu had nevertheless strengthened significantly, recovering entirely the ground lost in the first part of May, as the former had resumed the overall weakening trend in international financial markets, several members pointed out.   From that perspective, Board members highlighted the favourable implications of implementing the recently adopted package of fiscal and budgetary measures, conducive to a hefty and synchronised correction of the twin deficits. However, reference was also made to the current geopolitical tensions and armed conflicts, as well as to the US trade policy measures, with potential repercussions on international financial market volatility and on investors’ risk perception towards the region, as well as on the major central banks’ monetary policy stances.   During the talks, it was also mentioned that the annual pace of increase of credit to the private sector had stepped up further during the first two months of Q2 overall, reaching 9.7 percent in May, from 9.2 percent in March, given that the domestic currency component had grown at a slightly faster tempo, solely on the back of loans to non-financial corporations, while the sizeable decline in the dynamics of forex credit had been more than offset by the statistical effect of the leu’s exchange rate developments. Hence, the share of the leu-denominated component in credit to the private sector had narrowed to 69.8 percent in May from 70.0 percent at the end of 2025 Q1.   As for future developments, Board members remarked the sharp worsening of the near-term inflation outlook, following the expiry of the electricity price capping scheme on 1 July 2025 and in view of the increase in VAT rates and excise duties starting 1 August, in line with the recently approved package of fiscal and budgetary measures. Under their impact, the annual inflation rate was expected to pick up considerably in the next months, thus climbing well above the values indicated by the May 2025 forecast over the short time horizon.   Such an increase could affect longer-term inflation expectations, especially amid the sizeable and protracted deviation of the annual inflation rate from the variation band of the target in recent years, several Board members noted. They also referred to potential higher inflationary influences from the indirect effects of costlier fuels and utilities, as well as from future developments in some food prices, in the context of unfavourable weather conditions.   It was agreed, however, that the inflationary impact anticipated to be generated in Q3 by the two successive supply-side shocks would have a transitory nature and its fadeout in four quarters’ time would entail a marked downward correction of the path of the annual inflation dynamics.   At the same time, the overall implementation of the recently adopted fiscal consolidation package was conducive to stronger underlying disinflationary pressures over the longer horizon, mainly through the effects exerted, via multiple channels, on aggregate demand. To those would add the effects of the temporary decline in households’ purchasing power, owing to the inflation bout entailed by the two major supply-side shocks, which would affect consumer demand in particular, Board members repeatedly underlined. It was unanimously agreed that, in such a context, risks to medium-term inflation expectations were relatively low, yet warranted close scrutiny of all developments.   Underlying inflationary pressures would persist over the near-term horizon, but would ease more visibly than anticipated in May, Board members concluded. They referred to the prospects for the negative output gap to widen markedly in Q2 and Q3, also in relation to previous forecasts. They also mentioned the time lag necessary for the disinflationary effects thus generated to become manifest, as well as the likelihood for the annual dynamics of unit wage costs in the private sector to remain elevated, relatively in line with earlier forecasts.   Turning to the cyclical position of the economy, Board members showed that the new assessments pointed to very mild economic growth during 2025 Q2 and Q3 overall, and much more modest than previously envisaged, amid the recently adopted package of fiscal and budgetary measures to be implemented starting August for budget consolidation purposes.   Uncertainties were, nevertheless, further associated with the additional corrective measures likely to be adopted in the future in order to place 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 protracted war in Ukraine and Middle East situation, but especially amid the global trade tensions, affecting the world economy and international trade.   Board members insisted again on the importance of absorbing and efficiently using EU funds, especially those under the Next Generation EU programme, which were essential at the current juncture for partly counterbalancing the contractionary effects of budget consolidation and of geopolitical and trade conflicts globally, as well as 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.