The BG central bank’s interest rate decision for December 2025 marks a subtle but notable pause in the easing cycle that began earlier this year. The rate at 1.81% is slightly above the 1.80% recorded last month and well below the 2.59% peak in March 2025. This reflects a cautious stance amid moderating inflation and mixed growth signals.

Drivers this month

• Inflation easing to 3.20% YoY from 3.50% last month, reducing pressure on monetary tightening.
• GDP growth steady at 1.10% QoQ, signaling moderate economic resilience.
• Unemployment stable at 5.40%, supporting consumer demand.

Policy pulse

The 1.81% rate remains above the neutral estimate of 1.50%, suggesting a mildly restrictive stance. The central bank aims to balance inflation control with growth support, keeping rates steady after a series of cuts from 2.59% in March.

Market lens

In the first hour post-announcement, the BGN currency strengthened 0.15% against the USD, while 2-year government bond yields edged up 3 basis points, reflecting market confidence in the central bank’s measured approach.

Core macroeconomic indicators provide context for the interest rate decision. Inflation has moderated from a high of 4.10% in Q1 2025 to 3.20% in November, driven by lower energy prices and easing supply chain constraints. Meanwhile, GDP growth remains positive but subdued, averaging 1.00% QoQ over the past six months.

Inflation trends

Consumer Price Index (CPI) inflation fell from 3.50% YoY in October to 3.20% in November, aligning with the central bank’s target range of 2-4%. Core inflation, excluding volatile food and energy, held steady at 2.80%, indicating underlying price pressures persist but are manageable.

Labor market

Unemployment has hovered around 5.40% since August, near the historical low of 5.10% recorded in February 2025. Wage growth remains moderate at 3.00% YoY, supporting consumption without overheating the economy.

Fiscal policy & budget

Government spending remains expansionary, with a budget deficit of 3.80% of GDP projected for 2025, slightly higher than the 3.50% deficit in 2024. Fiscal stimulus supports infrastructure and social programs, cushioning growth amid global uncertainties.

Comparing the trajectory, the rate fell sharply from 2.59% in March to 1.82% in August, then stabilized near 1.80% through November and December. This plateau suggests the central bank is assessing incoming data before further adjustments.

Market lens

Immediate reaction: BGN/USD strengthened 0.15% post-decision, while 2-year yields rose 3 bps. This reflects market approval of the steady rate and confidence in the central bank’s balanced approach amid moderate inflation and growth.

Looking ahead, BG’s monetary policy faces several scenarios shaped by inflation dynamics, growth prospects, and external risks.

Bullish scenario (30% probability)

• Inflation continues to ease below 3%, allowing further rate cuts to 1.50% by mid-2026.
• GDP growth accelerates above 2%, driven by fiscal stimulus and export recovery.
• Stable geopolitical environment supports investor confidence and currency strength.

Base scenario (50% probability)

• Inflation stabilizes around 3.00-3.50%, prompting a steady policy rate near 1.80% through 2026.
• GDP growth remains moderate at 1.00-1.50%, with balanced labor market conditions.
• Fiscal deficits persist but manageable, with no major shocks.

Bearish scenario (20% probability)

• Inflation surprises on the upside, rising above 4%, forcing rate hikes to 2.00% or higher.
• Global geopolitical tensions disrupt trade, slowing growth below 0.50%.
• Fiscal pressures increase, raising borrowing costs and financial market volatility.

Risks and considerations

External shocks such as energy price volatility and geopolitical tensions in Eastern Europe remain key downside risks. Conversely, stronger-than-expected fiscal stimulus and global demand could support growth and ease inflationary pressures.

BG’s interest rate decision at 1.81% reflects a cautious but steady monetary policy stance amid moderating inflation and moderate growth. Historical comparison shows a clear easing trend from early 2025’s peak, now pausing to assess evolving macro conditions. The central bank balances inflation control with growth support, mindful of external risks and fiscal dynamics.

Financial markets responded positively, with currency appreciation and stable bond yields signaling confidence. Going forward, the policy path will hinge on inflation trends, geopolitical developments, and fiscal discipline. Investors and policymakers should prepare for a range of outcomes, with a base case favoring steady rates and moderate growth.

Key Markets Likely to React to Interest Rate Decision

The BG interest rate decision typically influences currency pairs, government bonds, and select equities sensitive to interest rate shifts. The following symbols historically track BG’s monetary policy moves:

• BGNUSD – Directly reflects BG currency strength and interest rate differentials.
• BDX – A major BG bank stock sensitive to interest rate changes.
• ELC – Utilities sector stock, impacted by borrowing costs.
• BGBTC – BG-based crypto pair, reflecting risk sentiment shifts.
• EURBGN – Euro to BG currency pair, sensitive to regional monetary policy divergence.

FAQs

What is the significance of BG’s current interest rate level?

The 1.81% rate signals a cautious monetary stance balancing inflation control and growth support amid moderate economic conditions.

How does the interest rate decision affect BG’s currency?

Interest rate changes influence BGN exchange rates by altering yield attractiveness and investor sentiment, impacting trade and capital flows.

What are the main risks to BG’s monetary policy outlook?

Key risks include inflation volatility, geopolitical tensions, and fiscal imbalances that could force policy shifts or market disruptions.

Key takeaway: BG’s interest rate at 1.81% reflects a strategic pause in easing, balancing inflation moderation with steady growth amid external uncertainties.