“The updated projection of macroeconomic developments reveals an improvement of the short-term inflation outlook as the VAT hike impact is fading, tensions in global food markets are calming and the local farm output is expected to have a favorable impact,” the central bank said in a statement after a monetary policy meeting.
Last summer, the government increased the value added tax rate by five percentage points to 24%, which drove the annual inflation above 7%, from around 4% before.
The first-round effects of the VAT hike should disappear completely in the next months, the central bank said.
However, the medium-term outlook is clouded by expected modifications in administered prices, “the volatility of capital flows amid developments in the sovereign debt crisis in the European Union and the United States, as well as uncertainties regarding the evolution of global commodity prices,” the statement noted.
The central bank Wednesday left its main interest rate at a record low of 6.25% a year for the tenth consecutive time. The bank also kept the minimum reserve requirements unchanged at 15% for Romanian-leu denominated liabilities and at 20% for foreign currency liabilities.
The decision “aims to preserve adequate broad monetary conditions and ensure a solid anchoring of inflation expectations,” the central bank said.
The central bank targets an annual inflation of 3% at the end of 2011, plus/minus one percentage point around the band. The bank has revised upwards its inflation forecast for 2011, to 5.1%, from 3.6% previously.
The next monetary policy meeting is scheduled for September 29.