Romania's Rate-Cut Debate Could Begin Early Next Year, Governor Says

Romania's central bank governor, Mugur Isarescu, indicated on Thursday that discussions on easing monetary policy could begin early next year, provided inflation continues its downward path and falls below the current benchmark interest rate.

Speaking after the bank held its key rate at 6.50% — the highest in the European Union — Isarescu said he could not confirm a cut this year. "As inflation falls below the interest rate level we can start to think of a cut," he said, adding that "early next year is when talk of a cut could happen."

The bank's latest projections show inflation at 6.1% by December, up from a previous estimate of 5.5%, and at 3.4% by end-2027, versus an earlier 2.9%. The target range remains 1.5% to 3.5%. The upward revision was driven by the Middle East conflict and Europe's drought, which has pushed the Danube River to record lows, sharply cutting Romania's power output and increasing reliance on costly imports.

Isarescu stressed that the overall trend remains disinflationary and that the central bank has partially anchored inflation expectations, even with real interest rates in negative territory.

Analysts polled this month do not expect a cut until at least the second quarter of next year. The bank's forecasts assume a gradual normalization of the Middle East situation.

Romania has struggled with double-digit inflation, fueled by higher taxes, energy prices, and the conflict, alongside a stagnating economy and political instability following the collapse of the government three months ago. Isarescu urged political parties to form a stable parliamentary majority to ensure fiscal and policy clarity beyond this year, noting that ratings agencies view a credible 2027 deficit-cutting budget as essential for maintaining the country's investment-grade status.

He added that the economy is likely to stagnate or contract this year and that the exchange rate has become less stable than before.