The National Bank of Romania Board members present at the meeting: Mugur Isărescu, 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; Alexandru Nazare, 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 developments in inflation, Board members pointed out the fluctuations in the annual inflation rate in the first two months of 2025, showing that the indicator had decreased less than anticipated to 5.02 percent in February against 5.14 percent in December 2024, given the significantly faster growth rates of energy prices and administered prices that had largely offset the declines in the dynamics of food, tobacco product and fuel prices over that period overall.
It was noted that the annual adjusted CORE2 inflation rate had resumed its decrease at a visibly faster pace, as forecasted, falling to 5.0 percent in February 2025 from 5.6 percent in December 2024, given that the mild decline posted over that period by the dynamics of processed food prices, after two quarters of growth, had been accompanied by the significantly swifter disinflation in non-food and services segments, whose annual dynamics had still continued to be high.
Following the analysis, it was concluded that the drop in the annual core inflation rate had been driven mainly by disinflationary base effects, especially across non-food sub-components and, to some extent, by the slower dynamics of import prices. At the same time, it was agreed that moderate opposite influences had continued to come from the hike in some agri-food commodity prices, as well as from the gradual pass-through of higher wage costs into some consumer prices, inter alia amid high short-term inflation expectations.
In that context, reference was made to the upward trend of the annual dynamics of industrial producer prices for consumer goods that had started in the autumn of last year and continued into January-February 2025, but especially to the sharp increase in firms’ and consumers’ short-term inflation expectations for Q1 as a whole. At the same time, it was noted that the financial analysts’ longer-term inflation expectations had seen a small upward adjustment in March, remaining only marginally below the upper bound of the variation band of the target, while the real disposable income of households had continued to grow at a sustained pace at the beginning of the year, albeit markedly slower than the 2024 Q4 average, reflecting the developments in real net wage and social transfers.
As for the cyclical position of the economy, Board members observed that in 2024 Q4 the economic activity had posted a faster-than-expected increase, to 0.8 percent from 0.1 percent in the previous three months, so that excess aggregate demand was likely to have narrowed at a slower pace over that period compared with the forecasts.
At the same time, the annual growth rate of household consumption had remained robust in 2024 Q4, decelerating only slightly versus Q3, while gross fixed capital formation had posted a large contraction compared with the same year-earlier period, contributing decisively to the decline in the annual GDP dynamics to 0.7 percent in the last quarter of 2024, from 1.2 percent in the previous quarter, Board members showed.
It was also noted that the contractionary impact of net exports had grown stronger in 2024 Q4, as the annual dynamics of the import volume of goods and services had seen a renewed pick-up and those of the export volume had continued to fall deeper into negative territory. The trade deficit had reported, however, a slower annual growth over that quarter too – amid the significantly improved terms of trade –, whereas the current account deficit had posted a markedly faster annual pace of increase, owing to the severe deterioration of income balances, inter alia on account of inflows of EU funds to the current account, Board members underlined.
Looking at the labour market, Board members showed that the latest data and surveys confirmed the halt in the easing of market conditions in 2024 Q4 – given also the steady job vacancy rate –, indicating a reversal of that trend, probably temporary, in the first months of 2025 and in the near future. The swifter monthly pick-up in the number of employees economy-wide in December 2024 and January 2025, as well as the slight fall in the ILO unemployment rate in the first two months of the year as a whole, after rising to and remaining at an average of 5.7 percent in 2024 H2 were deemed to be relevant. At the same time, employment intentions over the very short horizon had stepped up in 2025 Q1 overall, after declining for two quarters in a row, while the marked contraction in labour shortage reported by companies in the last quarter of 2024 had reversed entirely, several Board members pointed out.
Furthermore, the growth rates of wages and wage costs continued to be high and concerning from the perspective of inflation but also of external competitiveness, Board members remarked, pointing out that the annual dynamics of nominal gross wage had continued to decline in January 2025, remaining, however, in the two-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 increased again at the beginning of this year, to 15.3 percent, after having declined considerably in 2024 Q4.
At the same time, it was deemed that the mismatches between labour demand and supply in certain sectors could continue to pose high pressures, in the near term, on wages and labour costs in the private sector, inter alia amid the recent developments in inflation and short-term inflation expectations. However, opposite effects could come from the wage policy in the public sector in 2025, alongside the higher resort by employers to workers from outside the EU, but also to technology integration, Board members reiterated. Moreover, it was underlined that significant risks continued to stem, including in the longer run, from the uncertainties and effects of the trade policy of the US administration and the retaliatory measures taken by other countries, affecting the global economy and international trade.
Turning to financial conditions, Board members showed that the main interbank money market rates had further held relatively steady in February and March 2025 at the high levels reached in the previous quarter. At the same time, it was noted that long-term yields on government securities had fully corrected in February the abrupt increase seen in the first part of January, before remaining almost unchanged, amid the lowering of financial investor concerns about budget consolidation prospects after the completion and adoption of the draft budget for 2025, but also reflecting the fluctuations in global risk appetite. It was shown that, under the circumstances, the EUR/RON exchange rate had shifted in mid-Q1 and then stuck to higher readings, while in relation to the US dollar, the leu had strengthened significantly in February-March, recovering to a large extent the ground lost in the prior quarter, given the former’s sharp depreciation in international financial markets during that period.
Risks to the behaviour of the leu’s exchange rate were on the rise, Board members deemed. They repeatedly referred to the wide twin deficits and to the uncertainties surrounding the fiscal consolidation process, as well as to the trade policy measures of the US administration, conducive to heightened volatility in the international financial market and affecting investors’ risk perception towards the region, but also influencing the major central banks’ monetary policy stance.
It was also observed that the annual growth rate of credit to the private sector had stepped up further during the first two months of 2025 Q1 overall, reaching 9.4 percent in February from 8.8 percent in December 2024, as the pace of increase of loans to non-financial corporations had accelerated, while that of household credit had lost significant momentum, primarily due to the very swift dynamics of leu-denominated consumer loans embarking on a downward path. The share of the domestic currency component in credit to the private sector had narrowed marginally, to 69.9 percent in February 2025 from 70.0 percent in December 2024.
As for future developments, Board members showed that, according to the new data and assessments, the annual inflation rate would fluctuate further in 2025 H1, continuing to decline in March on a higher path than in the February 2025 medium-term forecast, before rising moderately in Q2, relatively in line with previous projections. The latter had seen it re-embark in Q3 on a downward path, to 3.8 percent in December 2025 and 3.1 percent at end-2026.
Board members remarked that the pick-up in Q2 would be driven primarily by the base effects associated with the sizeable drop in energy prices in the same year-earlier period, especially prices of natural gas – under the influence of legislative changes implemented as of April 2024 –, as well as of some food items, mainly those belonging to the VFE category. It was noted that their impact would heftily outweigh the one anticipated to be exerted by the opposite base effects further manifest in the non-food sub-components of core inflation and in the tobacco products segment, as well as temporarily in the case of fuels.
Moreover, the balance of risks to the inflation forecast induced by supply-side factors was strongly tilted to the upside at the current juncture, Board members concluded. They pointed out the heightened uncertainties and risks stemming from the future developments in energy and food prices, particularly in 2025 H2, also amid the regulations in the field. Furthermore, significant risks came from the expansion of trade protectionism, with a potential impact on the international prices of some intermediate and final goods, Board members deemed on several occasions.
At the same time, underlying inflationary pressures were expected to be still sizeable over the near-term horizon, and easing only slightly, Board members agreed. They referred to the prospects for the negative output gap to open and to widen in 2025 H1 to more modest values than previously envisaged. They also mentioned the time lag required for the disinflationary effects thus generated to become manifest, but also the annual dynamics of wage costs in the private sector further recording a double-digit level, although on a decline. However, notable disinflationary effects were expected over that time horizon from the slacker dynamics of import prices, as well as from the downward adjustment of short-term inflation expectations, albeit slower and from higher levels than previously anticipated, several Board members underlined.
Turning to the cyclical position of the economy, Board members showed that it would probably become less negative in 2025 H1 than anticipated in February, as the new assessments indicated for that period quarterly dynamics of economic activity comparable to those projected earlier, yet after a stronger-than-expected acceleration in 2024 Q4, and amid divergent developments of aggregate demand components versus the same year-ago period, at least in 2025 Q1.
Thus, it was observed that, according to high-frequency indicators, private consumption had probably slowed significantly its annual growth in 2025 Q1, while a larger contribution to GDP advance could have come from gross fixed capital formation. At the same time, the contractionary impact of net exports had probably strengthened, as the annual change in the exports of goods and services had recorded in January a markedly more modest increase versus 2024 Q4 than that seen in the case of imports, so that the negative differential between them had widened significantly. Consequently, the trade deficit had posted a sharply faster annual growth rate in January 2025 compared to 2024 Q4, whereas the current account deficit had seen a considerably slower annual pace of increase under the impact of large inflows of EU funds in terms of direct payments, Board members pointed out.
High uncertainties and risks continued to stem from the future fiscal and income policy stance, Board members claimed on several occasions. They mentioned the corrective fiscal and budgetary measures implemented or adopted so far and the budget execution in the first months of the year, but also the budget consolidation requirement according to the National Medium-Term Fiscal-Structural Plan agreed with the European Commission, as well as to the excessive deficit procedure.
At the same time, it was shown that heightened uncertainties and risks to the outlook for economic activity, implicitly the medium-term inflation developments, stemmed from the external environment, given the protracted war in Ukraine and the situation in the Middle East, but especially amid the trade policy of the US administration and the retaliatory measures taken by other countries, affecting the global economy and international trade, inter alia via an increase in uncertainty and a decline in consumer and investor confidence. Against that background, Board members expressed their concern about the deterioration of the international economic environment.
Moreover, Board members underscored the importance of absorbing and efficiently using EU funds, especially those under the Next Generation EU programme, which were essential for carrying out the necessary structural reforms and energy transition, but also for counterbalancing, at least in part, the contractionary impact exerted by geopolitical/trade conflicts and by budget consolidation, as well as 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.