The central bank Tuesday kept its main monetary policy rate unchanged at 1.75% a year, and maintained its minimum reserve requirement ratios at 8% for leu deposits and at 14% for foreign currency deposits.
Mostly due to a cut of the value-added tax rate for food products from 24% to 9%, the annual inflation came in at minus 1.6% in June, after a 3% drop in prices compared with the previous month.
The inflation rate is expected to return to positive territory by the start of 2017, the central bank said in a detailed statement after the monetary policy council meeting. In today’s meeting, the bank’s board also approved the quarterly inflation report, which will be published Thursday.
The board restated that its decisions aim to ensure price stability over the medium term in a manner supportive of economic growth within a sustainable macroeconomic environment, while safeguarding financial stability.
“To this end, it is necessary for the fiscal policy measures pending implementation not to jeopardize macroeconomic stability, which is an extremely important public asset underlying the currently favorable sentiment towards Romania,” the statement reads.
Central bank officials, including governor Mugur Isarescu, have publicly criticized the government’s plan to cut several taxes as of next year, most notably a cut of the standard VAT rate from 24% to 19%. The country’s president Klaus Iohannis vetoed the new fiscal stimulus plan, and the new Tax Code will undergo a second round of debate in Parliament later this month.
The fiscal policy easing measures and the updated unified wage law will have a direct impact on macroeconomic stability and the economic policy mix agreed upon with international institutions under the external financial arrangements, the central bank noted in Tuesday’s statement, adding the global economy is still characterized by tepid recovery and heightened volatility on financial markets, amid the situation in Greece and the economic picture in China.
“All these factors, which are likely to affect the global appetite for risk and investor perception regarding the Romanian economy, weigh on the management of domestic macroeconomic policies,” the central bank warned.
“The consistent implementation of an adequate monetary and fiscal policy mix and the progress in structural reforms are pivotal to preserving macroeconomic equilibrium, ensuring lasting economic growth, further convergence with the European Union, as well as to enhancing the resilience of the Romanian economy to potential shocks or adverse conditions worldwide.”