The economy runs with the engine brake pulled, and the NBR is in the Minotaur's labyrinth, according to the analysis of a large bank
Next year, the room for maneuver of the monetary policy will depend on 3 things: the success of the policies to reduce the budget deficit, the dynamics of inflationary expectations and the possible side effects of the VAT increase and the developments in the foreign markets. The trajectory of inflation excludes a decrease in the monetary policy interest rate at least until the second quarter of 2026, according to the analysis “Monetary Policy – The Minotaur's Labyrinth” published by BRD Research.
At this week's meeting, the National Bank of Romania decided to maintain the key interest rate at 6.5%, as well as the deposit facility (5.5%) and lending (7.5%) rates. The decision reflects “a combination of still high inflation and an almost stagnant economy,” the BRD report says
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Inflation: close to double digits
After a half-year in which inflation appeared to calm down, prices accelerated sharply in the third quarter of 2025, reaching 9.8% in October, up from 5.7% in mid-year.
“It was a sudden jump, fueled mainly through the fiscal channel – the increase in VAT and excise duties, but also the removal of the energy price cap in July,” notes the cited report.
The central bank notes “an almost complete pass-through of the VAT increase to consumer prices, amid still resilient demand and high inflationary expectations.”
Core inflation (adjusted CORE2) rose to 8.1% in September, at which level it stabilized in October — proof that inflation is no longer just fiscal in nature, but also structural.
Economy: engine brake in the last half of this year
BRD's analysis suggests that economic activity almost stagnated in the second half of 2025.
Retail sales entered negative territory: -1.9% annually in August and September, after +3.5% in July.
The food sector is in contraction (-1.2% in the first nine months), and services to the population “went into decline: -7.5% annually in August”, the report states.
Industrial production has been falling since April, returning to the negative: -1% in August. Even the labor market is showing signs of fatigue, with successive declines in the number of employees in July and August.
Loans slow, risks rise
The pace of lending growth slowed to 7.5% in September, especially in the corporate segment. “Uncertainties and risks regarding economic activity remain high, and the full absorption of European funds becomes crucial to compensate for the contractionary effects of budgetary consolidation and geopolitical tensions,” warns the analysis signed by Ioan Mincu, BRD senior economist.
Inflation forecast: a slow decline. Too slow.
The central bank anticipates a modest decline in inflation over the next three quarters, but on a higher trajectory than previously estimated, due to the transitory effects of supply shocks in the third quarter.
“The downward correction will only begin in the fall of 2026 and will be slower than previously estimated,” the report said.
Only in the first quarter of 2027, inflation would enter the target range (2.5% ±1%), against the background of “disinflationary pressures generated by the aggregate demand deficit”.
Bottom line: no rate cut before the summer of 2026
In BRD Research's view, the BNR has no room for maneuver for monetary relaxation before the second quarter of 2026. “The forecast trajectory of inflation excludes an interest rate reduction at least until then,” the document states.
The title of the report — “The Minotaur's Labyrinth” — perfectly describes the current situation: the NBR is in a twisted labyrinth – inflation still high, but economic activity anemic; the need to protect the currency, but also not to suffocate the economy. In such a context, any wrong move can have serious economic repercussions
