In its meeting of 7 April 2025, the Board of the National Bank of Romania decided the following:
- to keep the monetary policy rate at 6.50 percent per annum;
- to leave unchanged the lending (Lombard) facility rate at 7.50 percent per annum and the deposit facility rate at 5.50 percent per annum;
- to maintain the existing levels of minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.
The annual inflation rate went down in January 2025 to 4.95 percent, from 5.14 percent in December 2024, whereas in February it increased to 5.02 percent. Compared to end-2024, it decreased less than anticipated, as the declines in the dynamics of food, tobacco product and fuel prices in the first two months of Q1 overall were largely offset by the step-up in the growth rates of energy prices and administered prices.
The annual adjusted CORE2 inflation rate resumed its decrease during this period at a visibly faster pace, as forecasted, falling to 5.0 percent in February 2025 from 5.6 percent in December 2024, mainly under the impact of disinflationary base effects across non-food sub-components and the slower dynamics of import prices. Moderate opposite influences continued to come from the hike in some agri-food commodity prices, as well as from higher wage costs, passed through, at least in part, into some consumer prices, inter alia amid high short-term inflation expectations.
The annual inflation rate calculated based on the Harmonised Index of Consumer Prices (HICP – inflation indicator for EU Member States) went down to 5.2 percent in February 2025 from 5.5 percent in December 2024. The average annual CPI inflation rate dropped to 5.2 percent in February 2025 from 5.6 percent in December 2024. In turn, the average annual HICP inflation rate decreased to 5.5 percent in February 2025 from 5.8 percent in December 2024.
Economic activity posted a faster-than-expected increase in 2024 Q4, to reach 0.8 percent from 0.1 percent in the previous three months (quarterly changes), so that excess aggregate demand is likely to have narrowed at a slower pace over this period compared with the forecasts.
Annual GDP growth slowed to 0.7 percent in 2024 Q4 from 1.2 percent in the previous quarter. However, the annual growth rate of household consumption remained robust during this period, decelerating only slightly versus Q3, while gross fixed capital formation posted a large contraction compared with the same year-earlier period.
At the same time, the contractionary impact of net exports grew stronger, as the annual dynamics of the import volume of goods and services saw a renewed pick-up and those of the export volume continued to fall deeper into negative territory. The trade deficit reported, however, a slower annual growth over this quarter too – amid the significantly improved terms of trade –, whereas the current account deficit posted a markedly faster annual pace of increase, given also the severe deterioration of income balances, inter alia on account of inflows of EU funds to the current account.
The latest data and analyses point to a pronounced slowdown in quarter-on-quarter economic growth in 2025 Q1, implying an annual GDP growth rate relatively similar to that in the previous quarter, amid divergent developments in aggregate demand components as well as in major sectors.
Thus, in January 2025, the annual growth of retail sales slowed down significantly and services to households witnessed a mild year-on-year contraction, while the annual dynamics of the volume of construction works surged, posting a significant advance into positive territory, mainly as a result of the strong rebounds in the residential and civil engineering works segments. By contrast, industrial output reported an annual contraction, while the annual change in exports of goods and services saw a notably lower rise against 2024 Q4 compared to that in the imports thereof, so that the negative gap between them widened significantly. Consequently, the trade deficit posted a sharply faster annual growth rate in January 2025 compared to 2024 Q4, while the current account deficit saw a considerably slower annual pace of increase under the impact of large inflows of EU funds in terms of direct payments.
Looking at the labour market, the number of employees economy-wide recorded a swifter monthly pick-up in December 2024 and January 2025, while the ILO unemployment rate fell slightly over the first two months of 2025 as a whole, after rising to and remaining at an average of 5.7 percent in 2024 H2. Furthermore, the surveys indicate that employment intentions over the very short horizon stepped up in 2025 Q1 overall, after declining for two quarters in a row, while the marked contraction in labour shortage seen in the last quarter of 2024 reversed entirely during this period. The annual growth rate of nominal gross wage continued to decline in January 2025, remaining, however, in the two-digit range, while that of unit labour costs in industry increased to 15.3 percent at the beginning of this year, after declining considerably in 2024 Q4.
The main interbank money market rates held relatively steady in February and March 2025. Long-term yields on government securities extended their downward course until towards end-February, fully correcting the abrupt increase seen in the first part of January. Afterwards, they remained 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. Against this background, the EUR/RON exchange rate shifted in mid-Q1 and then stuck to higher readings. In relation to the US dollar, the leu strengthened significantly in February-March, recovering to a large extent the ground lost in the previous quarter, given the former’s sharp depreciation in international financial markets during this period.
The annual growth rate of credit to the private sector 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 accelerated, while that of household credit lost significant momentum, primarily owing to consumer loans. The share of the domestic currency component in credit to the private sector narrowed marginally, to 69.9 percent in February 2025 from 70.0 percent in December 2024.
According to current assessments, the annual inflation rate will 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, under the impact of unfavourable base effects associated with energy and food price developments in the same year-earlier period.
Heightened uncertainties and risks stem from the future performance of energy and food prices, also given the legislation in the field, but also from the trade policy measures taken by developed economies, with a potential impact on commodity prices, as well as on the international prices of some intermediate and final goods.
High uncertainties are associated with the future fiscal and income policy stance, given on one hand the presumed impact of the corrective fiscal and budgetary measures implemented or adopted so far, as well as the budget execution in the first two months of the year, and on the other hand the budget consolidation requirement according to the National Medium-Term Fiscal-Structural Plan agreed with the European Commission and to the excessive deficit procedure. Labour market conditions and wage dynamics in the economy also remain a source of uncertainties and risks.
Heightened uncertainties and risks to the outlook for economic activity, implicitly the medium-term inflation developments, arise 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 developments in the global economy and in international trade. Furthermore, the absorption and use of EU funds, mainly those under the Next Generation EU programme, are conditional on fulfilling strict milestones and targets. However, they are essential for carrying out the necessary structural reforms, energy transition included, as well as for counterbalancing, at least in part, the contractionary impact exerted by geopolitical conflicts and budget consolidation.
The ECB’s and the Fed’s monetary policy decisions, as well as the stance of central banks in the region, are also relevant.
The NBR Board members expressed their concern about the deterioration of the international economic environment.
Based on the currently available data and assessments, as well as in light of the particularly elevated uncertainty, the NBR Board decided in the meeting held today, 7 April 2025, to keep the monetary policy rate at 6.50 percent per annum. Moreover, it decided to leave unchanged the lending (Lombard) facility rate at 7.50 percent per annum and the deposit facility rate at 5.50 percent per annum. Furthermore, the NBR Board decided to maintain the existing levels of minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.
The NBR Board decisions aim to ensure and maintain price stability over the medium term, in a manner conducive to achieving sustainable economic growth. The NBR Board reiterates that, at the current juncture, the balanced macroeconomic policy mix and the implementation of structural reforms, also by using EU funds to foster the growth potential over the long term, are of the essence in preserving a stable macroeconomic framework and strengthening the capacity of the Romanian economy to withstand adverse developments.
The NBR closely monitors developments in the domestic and international environment and stands ready to use the tools at its disposal in order to achieve the fundamental objective regarding medium-term price stability, while safeguarding financial stability.
The account (minutes) of discussions underlying the adoption of the monetary policy decision during today’s meeting will be posted on the NBR’s website on 17 April 2025 at 3:00 p.m.
The next monetary policy meeting of the NBR Board will be held on 16 May 2025.