CEE Central Bank Performance 2025: Navigating Economic Headwinds
The year 2025 presents a nuanced picture for central bankers across Central and Eastern Europe (CEE), as they contend with a myriad of economic challenges ranging from persistent inflation and geopolitical instability to the intricate dance of monetary policy adjustments. This comprehensive report delves into the performances of key central bank governors in the region, assessing their strategies and the resulting economic landscapes.
The CEE region, characterized by its dynamic economies and ongoing integration efforts with the European Union, serves as a vital barometer for broader European economic health. Central banks here are tasked with maintaining price stability, fostering sustainable economic growth, and safeguarding financial systems amidst both internal pressures and external shocks. This analysis provides an academic yet accessible overview of their efforts and the varied outcomes observed throughout the year.
Albania: Sustained Stability Amidst Growth
Gent Sejko, Governor of the Bank of Albania, marks a decade in his role, credited with contributing to the nation's impressive economic turnaround. Despite its status as one of Europe's poorer nations, Albania has seen significant progress, with GDP per capita rising and consistent high GDP growth rates, projected at 3.2% for 2025. Sejko's leadership has been instrumental in maintaining market confidence, particularly for an economy that faced severe instability in 1997. The Bank of Albania has successfully kept inflation below its 3% target, averaging 2.4% in 2024 and reaching 2% by year-end, leading to policy rate easing. A notable initiative was the introduction of a new regulatory framework for financial institution marketing in 2024, enhancing transparency and consumer protection.
Armenia: Resilience in Challenging Times
Martin Galstyan, Governor of the Central Bank of Armenia (CBA) since April 2020, has navigated his country through significant geopolitical challenges, including a substantial influx of refugees from Nagorno-Karabakh, Russia, and Ukraine. Despite these pressures on a smaller economy, Galstyan has demonstrated prudent leadership. The CBA, reflecting confidence in long-term price stability, lowered its inflation target to 3% (with a ±1.0 percentage point band) in late 2024. Monetary policy has been deemed "appropriate" by the IMF in June 2025, with annual inflation rates around 3.2% in 2025 and 3.3% in 2026, well within the target range. Policy rates have seen cumulative cuts, reaching 6.75% after a 225 bps reduction since 2024. Furthermore, efforts to de-dollarize the economy have shown progress, with foreign currency deposits and loans declining significantly from their 2014 peaks.
Belarus: Uncertainties Under New Leadership
The National Bank of Belarus witnessed a leadership change in January, with former Prime Minister Roman Golovchenko replacing Pavel Kallaur. This transition has raised concerns among observers regarding potential regressive shifts in monetary policy. Kallaur was recognized for modernizing the central bank, embracing inflation targeting and a free-floating currency. In contrast, Golovchenko, a loyalist to Aleksander Lukashenko, has echoed calls for subsidized credit to state enterprises. The Belarusian economy, despite official claims of 4% GDP growth last year, faces slowing drivers and rising inflation. The central bank's decision to maintain the refinancing rate at 9.75% (raised by 25 bps in June) despite a 7.4% inflation rate and a 5% target, indicates a potentially problematic policy direction.
Bosnia & Herzegovina: Navigating Political Turbulence
Jasmina Selimović, appointed as Bosnia's first female Central Bank (CBBH) governor in 2024, assumed her role amidst growing political instability and concerns over the Dayton constitutional structure. The country has successfully maintained a currency board for 25 years, pegging its Convertible Mark to the euro. However, challenges persist, particularly concerning business transparency and corruption, with Bosnia's position on Transparency International's Corruption Perceptions Index worsening in 2024. The CBBH emphasizes adherence to EU corruption prevention standards, monitoring compliance to safeguard its reputation and prevent financial losses.
Bulgaria: On the Brink of Eurozone Entry
Dimitar Radev, Governor of the Bulgarian National Bank (BNB), celebrated a decade in office in July 2025, a testament to stability in a politically dynamic nation. His steadfast commitment to sound monetary policy was a key factor in Bulgaria receiving the green light for eurozone accession in January 2026. Despite persistent inflation, which hit 4% in January 2025 before dropping to 2.7% in April, Bulgaria's low debt levels (24%) and long-standing peg to the euro have made its entry feasible. From August 2025, dual pricing will be implemented to facilitate the transition. The shift from a currency board, which kept BNB's monetary levers limited to reserve requirements, will see reserve requirements drop from 12% to 1% post-euro adoption.
Czech Republic: A Steady Hand in Monetary Policy
The Czech National Bank (CNB), under Governor Aleš Michl, continues its consistent approach to monetary policy. Following gradual easing in 2024, the CNB delivered two rate cuts in February and May 2025, with Fitch Ratings anticipating the policy rate to stabilize at 3.5% through 2025. While inflation concerns arose in mid-2025, with headline CPI reaching 2.7% against a 2% target, the CNB maintained its 3.5% interest rate in September. Projections indicate average inflation of 2.5% in 2025 and 2.2% in 2026, driven by a robust domestic economy and service sector inflation. Real GDP growth of 2.6% year-over-year in Q2 2025, with similar projections for the full years, suggests a well-balanced economy and non-inflationary growth under Michl's tenure.
Georgia: Balancing Stability and Reform Doubts
Natia Turnava, confirmed as governor of the National Bank of Georgia (NBG) in February 2025, previously served in the ruling Georgian Dream government. Her appointment signals a preference for continuity amidst ongoing skepticism about Tbilisi's commitment to Western integration and reform, a factor believed to have contributed to a 30% decline in FDI in 2024. Turnava has successfully prioritized price stability, with inflation dipping below the 3% target in 2024 despite strong domestic demand, and an expected average of 3.2% for 2025. Interest rates are projected to remain stable at 8% to curb demand for foreign currency and address high dollarization. The NBG has also actively sought to boost foreign reserves, increasing them to approximately $4.7 billion by June 2025 and diversifying its asset base through significant gold purchases.
Hungary: Tackling Persistent Inflation
Mihály Varga commenced his six-year term as governor of the National Bank of Hungary (NBH) in March 2025, inheriting an economy grappling with persistent inflation, currently around 4.6% year-on-year. Economic growth remains sluggish, with 0.8-1% expected for 2025 after a modest 0.5% in 2024, falling short of NBH projections. Varga appears to acknowledge Hungary's structural inflation issues, maintaining interest rates at 6.5% since August for the eleventh consecutive month. This stance persists despite underperforming growth, reflecting the challenge of high inflationary expectations and external headwinds like US tariffs and drought-related food price increases. ING forecasts inflation to rise to around 5% in Q4, averaging 4.6% across 2025, with persistent underlying pressures.
Poland: Navigating Rate Cuts and Fiscal Risks
Adam Glapiński, Governor of Narodowy Bank Polski (NBP), experienced a less turbulent 2025 compared to previous years, despite continued criticisms regarding monetary policy decisions. The Monetary Council's decision to cut interest rates by 25 bps to 4.75% in July, following an earlier reduction, sparked debate. ING Bank anticipates further front-loaded cuts, targeting 3.5% by early Spring 2026. Headline inflation is trending towards the NBP's 1.5% to 3.5% target, expected to reach 2.5% by year-end. Economic growth, driven by a robust services sector, saw Q2 2025 GDP growth at 3.4% YoY, with projections nearing 4% in the second half, leading to a 3.5% full-year growth. However, Glapiński acknowledges risks, particularly the absence of fiscal tightening, as the deficit rose to 6.6% of GDP in 2024, exceeding government forecasts.
Romania: Stability Amidst Inflation and Fiscal Gaps
Mugur Isărescu, the world's longest-serving central bank governor, faces a challenging 2025 marked by rising inflation and sluggish growth. Romania's economy inherently struggles with sticky inflation, exacerbated by wage increases, consumer demand for imports, and significant fiscal stimulus that pushed the budget deficit to 9.3% in 2024. Inflation remained well above target at 5.8%. Isărescu's response has been to maintain stability, holding interest rates at 6.5% since August 2024, with reductions unlikely until a substantial decline in inflation. By mid-year, inflation rose to approximately 6% and was paradoxically expected to increase further due to the government's ambitious fiscal reduction package, which included inflationary elements like excise duty hikes. ING forecasts a 2025 year-end inflation of 7.5%, limiting room for monetary easing by the NBR.
Russia: War Economy's Shadow on Monetary Policy
Elvira Nabiullina, once highly regarded, now faces scrutiny as her role as a key enabler of Russia's war economy becomes evident. Her policies, characterized by caution and stability, have come at the cost of high real interest rates (around 17% in mid-2025, down from 21% in late 2024), contributing to economic stagnation. While she has had some success in fighting inflation, which stood at 8.8% in July against a 4% target for 2026, the long-term economic prospects remain dim. Concerns about the banking sector, fueled by a 45% surge in corporate loans since the war, primarily to war-related public entities, pose significant risks. Further rate cuts in 2026 could trigger ruble depreciation and renewed inflation, while a large banking crisis could lead to a severe recession.
Serbia: Prudent Management and Gold Reserves
Jorgovanka Tabaković, Governor of the National Bank of Serbia (NBS), commenced her third term (2024-2030), a testament to her successful first two. Her cautious approach to monetary policy, vital in a politically sensitive environment, has yielded positive results. Inflation, at 3.8% in mid-2025, is on track to meet the 3% target by year-end, supported by high real interest rates (5.75% key rate, with deposit and credit facility rates at 4.5% and 7% respectively). The managed narrow float of the dinar against the euro has effectively contained prices and exchange risk. To bolster resilience against global uncertainties, the NBS has increased its gold reserves to 50.5 tonnes, accounting for almost 17% of its €28 billion foreign reserves. Additionally, Serbia has implemented new banking regulations, establishing a banking resolution fund, enhancing prudential frameworks, and expanding the central bank's supervisory powers.
Turkey: The Battle Against Inflation and Dollarization
Fatih Karahan, appointed as Turkey's sixth central bank governor in five years in February 2024, has been vocal about his commitment to stability, curbing inflation, and reducing dollarization. His strategy focuses on increasing Turkish lira deposits, gradually phasing out FX-protected deposits, and regulating credit growth. Inflation, which ended 2024 at 44.4% (down from an annual average of 60%), continued to fall, reaching 35.2% in early June and just under 33% in August. However, meeting the year-end target of 24% remains a significant challenge. Interest rates, initially on a downward trajectory, were hiked by 350 bps to 42.5% in March 2025 in response to political instability, before being reduced to 40.5%. This incident highlights the external vulnerabilities that can easily disrupt the Central Bank of the Republic of Türkiye (CBRT)'s efforts.
Ukraine: War's Toll on Economic Recovery
Andriy Pyshnyy, Governor of the National Bank of Ukraine, leads decision-making dominated by the ongoing war with Russia. The conflict has severely impacted infrastructure and industry, shrinking Ukraine's economy by approximately 20% since February 2022. Pyshnyy has appealed to international investors for support, estimating reconstruction costs at around $1 trillion. In July 2025, he announced that the key interest rate would be held steady at 15.5%, projecting a slowdown in GDP growth to 2.1% in 2025 (from 2.9% in 2024), a larger drop than initially forecast, partly due to a worse-than-expected harvest. He emphasized that the pace of recovery is intrinsically linked to the war's progression and highlighted the impact of aid shortfalls. Inflation is expected to reach 9.7% by the end of 2025, moderating to 6.6% in 2026, still above the 5% target.
In conclusion, the CEE central banking landscape in 2025 is marked by a spectrum of challenges and policy responses. While some nations, like Albania, Bulgaria, and Serbia, demonstrate remarkable stability and progress towards strategic goals, others, such as Russia and Ukraine, contend with profound geopolitical and economic crises. The emphasis on price stability, prudent monetary management, and systemic resilience remains a common thread, albeit implemented with varying degrees of success and autonomy across the diverse economies of Central and Eastern Europe.