The National Bank of Romania opted on Wednesday to maintain its benchmark interest rate at 6.5%, a decision that matched market forecasts as inflation pressures persist while the economy contracts.
In its updated outlook, the central bank said it expects inflation to fall to 5.5% by the end of this year, but it warned that inflation will not re-enter the bank's official target range of 1.5% to 3.5% until the third quarter of 2027.
Policymakers see a pronounced easing of price growth in the third quarter, driven largely by the waning impact of higher electricity costs and the tax increases that were implemented in 2025. Those measures were adopted to tackle what the bank described as the largest budget deficit in the European Union and to help safeguard Romania's investment-grade credit rating.
"The annual inflation rate is seen shrinking slightly in June, before posting a substantial decline in the third quarter," the central bank said in a statement.
The bank also noted expectations for longer-term disinflationary pressure coming from weaker aggregate demand, a trend it attributes to the budget consolidation steps that began in 2025 and will continue into 2026.
Beyond domestic fiscal measures, the central bank highlighted heightened uncertainty linked to a domestic political crisis. The collapse of a pro-European government two months ago has left parties unable to form a new parliamentary majority. Four parties from the former coalition have put forward competing candidates for prime minister, stalling policymaking.
Officials warned that the political impasse has interrupted legislative action and jeopardized access to European Union funds that the central bank says are supporting the economy as domestic demand weakens.
On the international front, the bank cited the breakdown of an interim accord between the U.S. and Iran intended to end their conflict as an additional source of uncertainty for the economy.
Market analysts surveyed by the bank and observers outside expect the policy rate to remain at 6.5% through 2026 and into the first quarter of 2027.
Key implications for markets include continued pressure on real incomes while monetary policy remains restrictive, sensitivity for government borrowing costs as fiscal consolidation proceeds, and heightened political risk that could affect EU funding flows.