The neutral nominal rate in Romania has been falling since the start of inflation targeting in 2005. The Taylor Rule clearly shows that interest rates peaked in 2022 and have been on a clear downward path ever since.

Furthermore, the model estimates a long-term neutral nominal rate of around 3.9%, which is the equivalent of approx. 1.4% real.

Using a more sophisticated model (i.e. New York FED’S HLW model), the real neutral interest rate in Romania is estimated currently at around 1.5% (1.7% 2023 average) and the historical mean at 1.2%.

This implies a neutral nominal rate between 4.00% and 4.50%. In the past decade, the NBR real effective rate was below the neutral rate and only over the past year climbed above the neutral mark.

Source: Erste Bank