Romanian central bank raises 2025 inflation forecast, no rate cut plan at present

BUCHAREST: Romania’s annual inflation will not fall back within the central bank’s target this year, and cutting interest rates would likely cause the leu currency to weaken, Governor Mugur Isarescu said on Monday.

Isarescu said it was important for the Romanian leu not to weaken at a time of high political tension in Romania, which will hold a repeat presidential election in May.

“Now is not the time to think about a cut in the monetary policy rate because under current conditions the risks … for leu currency depreciation would increase,” Isarescu told a press conference.

“As domestic political tensions ease we … will give more flexibility to the exchange rate.”

The bank has a managed currency float and although it intervenes to stem sharp currency movements it does not comment on it.

Earlier this month, policymakers held the benchmark interest rate at 6.50%, staying cautious amid persistent inflationary pressures and fiscal uncertainty ahead of a repeat presidential election. Annual inflation stood at 4.95% in January.

The bank expects inflation at 3.8% in December, compared with a previous forecast of 3.5%. It sees inflation at 3.1% at end-2026, within its 1.5%-3.5% target band.

Isarescu said the new forecasts did not take into account recent tensions between the European Union and the United States over Ukraine and trade.

He also said Romania is prepared to face potential capital outflows after the repeat election in case of a win by a far-right candidate.

Romanian policymakers were the last among Central and Eastern European peers to begin cutting rates last year, easing twice before high government spending and tax changes slowed inflation’s decline and widened fiscal and current account deficits.

The leu was flat against the euro in trade on Monday.