The Bucharest-based Banca Nationala a Romaniei kept the monetary policy rate at a record-low 6.25%. The decision was expected by seven out of eight economists surveyed by Bloomberg. One expected a quarter-point cut.
The government, relying on 20 billion euros ($24 billion) in loans from the International Monetary Fund and the European Union to finance its deficit, raised the VAT to 24 percent on June 26 to plug a budget hole created when the Constitutional Court threw out a proposal to cut pensions by 15%.
“The increased VAT will immediately trigger a significant rise of consumer price levels and consequently a temporary pick- up in inflation,” so the central bank “will act to limit the second-round effects of this measures and firmly anchor inflation expectations at low levels,” it said in a statement.
Source: Business Week