09/05/2025
At its meeting today, the NBS Executive Board voted to keep the key policy rate on hold, at 5.75%. It did not change the deposit (4.5%) and lending facility (7.0%) rates either.
When making the decision, the Board noted that, though inflation retreated significantly and is moving within target bounds, a cautious momentary policy should still be pursued. Inflation at home greatly depends on developments in global commodity and financial markets which are currently highly volatile amid uncertainty related to trade policies of leading global economies. Estimates prevail that, in such circumstances, global inflation will probably recede at a slightly slower-than-expected pace, while economic growth will be subdued due to disruptions in trade flows, production chains and weakness in key drivers of growth such as foreign trade, investment and consumption. Though the anticipated slower global growth triggered a decline in world prices of primary commodities, primarily of crude oil, caution is needed as higher production costs in the conditions of increased tariffs could produce inflationary effects. The Executive Board also took into account market participants’ expectations that the ECB will probably continue to ease its monetary policy, resulting in more favourable terms of euro-indexed borrowing at home. According to recent announcements, the Fed can be expected to be more cautious in its monetary policy easing, as it will most likely face heightened inflationary pressures due to tariffs, which could affect capital flows to emerging economies. In addition, the prices of some food inputs in the global exchanges (cocoa and coffee) that recently reached their maximum levels, as well as a weaker agricultural season at home last year, will continue to impact food prices for some time, whereas with the arrival of the new agricultural season the situation should stabilise.
Consistent with the NBS’s expectations, inflation moved around the upper bound of the target tolerance band in Q1 2025, measuring 4.4% in March. Relative to end-2024, prices of energy and services each contributed 0.1 pp less to inflation in March, while the contribution of food prices increased by 0.3 pp, mostly reflecting the stubbornly high global prices of cocoa and coffee. Core inflation declined to 5.1% in March, its lowest level since July 2024, signalling a gradual easing of cost-push pressures.
The Executive Board expects inflation to continue to move within the target tolerance band, slow from mid-year and approach the 3% midpoint by the end of the year. This will be supported by the still restrictive effects of monetary policy, the onset of the new agricultural season – assuming it will be average – as well as the expected low prices of petroleum products in accordance with futures. The reduction in inflation at home will also be underpinned by lower imported inflation and the anticipated movement of real wages in line with productivity growth, which should contribute to a further slowdown in core inflation and its convergence with headline inflation.
As regards real sector developments, according to the SORS flash estimate, GDP grew by 2.0% in real terms in Q1 2025. Lower-than-expected growth, as assessed by the Executive Board, is recorded in both the production and services sectors and is a consequence of still weak external demand, issues in the European automobile industry, and elevated risk aversion globally, as well as blockades and protests that have dented consumption and investment in the domestic market. Still, the Executive Board expects an acceleration of economic activity later in the year, supported primarily by supply-side factors, notably the planned step-up of production in the automobile industry, the activation of new capacities in the energy sector, and the implementation of infrastructure projects under the “Expo 2027” programme. Economic growth is also supported by close to 10% growth in lending to the corporate and household sectors, which reflects past monetary easing by the NBS and the ECB.
The NBS will continue to follow and analyse developments in the domestic and international markets and make monetary policy decisions on a meeting-to-meeting basis depending on the incoming data, the outlook for inflation and its key factors, and the assessment of the effects of adopted monetary policy decisions. In making its decisions, the Board will remain mindful of the preservation of financial stability and a favourable growth outlook.
At today’s meeting, the Executive Board adopted the May Inflation Report with the latest macroeconomic projections that will be presented to the public in more detail at the press conference on 14 May, along with additional explanations of monetary policy decisions.
The next rate-setting meeting where economic developments will be considered is scheduled for 12 June.
Governor’s Office
