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We expect the National Bank of Romania (NBR) to keep its policy unchanged at 6.50% at its 8 August meeting. The Bank faces a difficult combination of temporary price shocks and a stagnant economy, which warrants policy prudence. A mild easing via better liquidity conditions can still be envisaged.

Recent fiscal changes have added some predictability to economic policy, but they also bring new inflation risks. The liberalised electricity prices from 1 July, plus higher VAT and excise duties in August, aim to shrink Europe’s largest budget deficit, but they will push inflation into the high single‑digit area in the coming months. June inflation already surprised on the upside, and we see year‑end inflation at 7.9%, with a peak above 8.0% in September–October.

Prudent stance despite a weak economy
 

We argued in our July note that rate cuts are a story for 2026. That view still holds. Policymakers will likely see the upcoming inflation hump as a one‑off shock tied to taxes and energy and intend to “look through” it. The NBR will not chase the spike with higher rates, but nor will it risk early easing when inflation expectations are vulnerable. Despite weak economic growth, the Bank is likely to conclude that this alone doesn’t justify cutting rates.

Our view, therefore, remains unchanged: no cuts until at least the first quarter of 2026, with some easing possible from the second quarter if disinflation is on track. In the second half of 2026, strong base effects and softer demand should bring inflation back towards the 4.0 % area.

Liquidity management and the leu
 

While the benchmark rate is set to stay put, we see some room for “unofficial” easing via liquidity management. In recent months, the NBR drained excess liquidity to help stabilise the currency, but, as we’ve argued in our latest Monitoring Romania, the Bank may now allow liquidity to creep back. This would nudge short‑term market rates down towards the deposit facility and relieve pressure on market rates without an explicit rate cut. Such contained accommodation could help offset tightening financial conditions caused by the fiscal package and preserve a stable money market curve.

Our market views
 

The Romanian leu has stabilised in the 5.060-080 range since the beginning of July, with a few exceptions, and has successfully found new levels after previous sharp moves. Apparently, the RON has more freedom to move than it used to have in recent years. With higher inflation coming in the coming months, we expect the NBR will not want to allow more inflationary pressures coming from a weaker currency. Therefore, unless we see a significant internal or external shock, we can assume that we will not see levels above this range in the short term. At the same time, inflation should peak in September and October. The RON remains significantly overvalued, and in recent weeks, the market has seen that the upward pressure on EUR/RON is still there. Understandably, the massive current account deficit will continue to weigh on the currency while markets continue to keep a close eye on the execution of fiscal consolidation. Therefore, we leave 5.100 EUR/RON in our forecast for the end of the year as room to move up after the inflation peak if the situation remains stable.

The forward market also saw a significant normalisation in July, with implied yields returning to pre-May levels. Almost the entire forward curve has stabilised around the 6.20% level, and there is little sign of monetary easing expectations. On the other hand, excess liquidity in the market is still rebuilding, leaving room for further declines in implied yields if the central bank wants to offset the tightening of conditions resulting from fiscal consolidation.

Similar to FX, Romanian government bonds (ROMGBs) have found new levels in the new conditions. The 10y yield has stabilised in the 7.00-7.20% range, and we have seen a significant tightening in spreads vs CEE peers, in some cases to the narrowest levels since November 2024. Therefore, valuations seem relatively expensive, and it may be easier to find value elsewhere. The market seems to have received the consolidation package very positively, and the risk now is rather on the side of possible disappointment with the execution of the approved measures, in our view.

At the same time, the economy is heading towards a period of higher inflation, significantly above CEE peers. On the supply side, MinFin used lower yields to increase supply in July, which matched market demand. Assuming a 7.5% deficit this year, MinFin has covered roughly 70% of ROMGBs issuance according to our calculations. Assuming at least one more FX issuance and an acceleration of retail issuance, MinFin should be in a comfortable position if the fiscal postition remains under control.

Meeting should be a non‑event but watch the Inflation Report
 

The upcoming meeting is expected to be uneventful in terms of policy changes. However, it’s significant because it precedes the release of the August Inflation Report, which will reflect the impact of recent fiscal measures. The report will likely show a considerably higher inflation peak than the previous forecast, followed by a sharp decline in 2026. It will also provide insights into the Bank’s views on economic growth and the effects of fiscal policy.

In short, we expect the NBR to stay the course: keep rates steady, stress that tax‑driven inflation cannot be fought with higher rates and rely on liquidity management to provide marginal relief. Rate cuts remain a 2026 story, and any shift in tone is more likely to come from the new inflation report rather than from the 8 August decision itself.

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