UPDATE 1-Romanian central bank raises 2026 inflation forecast

Romania's central bank ​on Tuesday raised its annual inflation forecast ​for this year and central bank ‌governor Mugur ​Isarescu said policymakers were expecting the rate to peak at around 11% in July, driven by higher fuel prices.

The bank expects inflation ‌at 5.5% in December, compared with a previous forecast of 3.9%. The bank sees inflation at 2.9% by the end of 2027, unchanged from the previous forecast and within its 1.5%-3.5% target range. Romania's annual ‌inflation rose to 10.71% in April, a three-year high as the ongoing conflict in the ‌Middle East pushed up fuel prices. Price pressures from the Iran war compounded the impact of measures announced last year to cut the EU's largest budget deficit including raising taxes and freezing public-sector wages and pensions.

The impact of those measures ⁠is expected ​to fade by autumn, with ⁠inflation seen falling to 6% by September, Isarescu said, adding falling labour costs and domestic demand were helping keep price ⁠pressures in check despite their heavy social toll. The central bank held the benchmark interest rate at ​6.50% as expected, balancing double-digit inflation with a contracting economy and a government collapse earlier this ⁠month. Analysts expect the central bank to hold rates throughout 2026. Isarescu also said the Romanian leu, which fell to ⁠record lows ​after the government collapsed, was at an equilibrium. He added the bank had intervened significantly less than it did during the 2025 presidential election.

"It looks like at current levels we ⁠can allow a greater flexibility of the exchange rate because foreign exchange reserves are at an adequate ⁠level," Isarescu told a ⁠conference. "The exchange rate seems balanced in the market, however it depends on continuing the fiscal correction and political stability."

At 0910 GMT the Romanian leu ‌was down ‌0.24% against the euro at 5.2210.

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