Romanian Inflation Ends Tumultuous Year in Politics Close to 10%

Romanian inflation ended 2025 near 9.7%, nearly three times the central bank’s target range. Consumer prices rose 0.2% in December from the prior month, according to data from the statistics office in Bucharest. The central bank had forecast an annual inflation rate of 9.6% for the year.

The pro-European administration introduced tax increases to reduce the budget deficit, which had reached over 9% of GDP by mid-2025. These measures, along with the removal of an energy price cap, contributed to higher consumer prices. Despite these efforts, inflation remains well above the central bank’s upper target band of 3.5%.

The National Bank of Romania has held its key interest rate at 6.5% since mid-2024. Officials expect a significant slowdown in inflation by the second half of 2026, with the rate potentially easing to 5.25%.

Why Did This Happen?

The government’s fiscal consolidation efforts were intended to reduce the budget deficit to below 8.4% by the end of 2025. However, the removal of the energy price cap had a larger-than-expected impact on inflation. These actions, combined with tax hikes, contributed to the sharp rise in consumer prices.

The political crisis earlier in 2025 also played a role. The pro-European administration had to implement urgent tax measures to stabilize the budget, which further fueled price growth.

What Are Analysts Predicting for 2026?

Economists expect inflation to drop significantly in the second half of 2026. Raiffeisen Bank SA’s Nicolae Covrig anticipates the rate falling to 4% by year-end, which would allow the central bank to cut the key rate to 5.25%.

The central bank has signaled a potential rate-cutting cycle in 2026, with the earliest move expected in May. This would reflect the expectation of improved inflation dynamics and continued fiscal consolidation.

What Are Analysts Watching Next?

Investors and analysts are closely monitoring the progress of fiscal consolidation and its impact on consumer prices. A sharp decline in inflation would support further rate cuts and bolster confidence in the central bank’s policy framework.

Market watchers are also assessing the political landscape. Romania’s readiness for unification with Moldova could influence investor sentiment, particularly given the country’s pro-European orientation.

The National Bank of Romania will continue to balance inflation control with the need to support economic growth. A more predictable inflation trajectory could attract foreign investment and ease pressure on the currency.