Isarescu: Inflation rate to reach 8 pc by year's end

If this year's inflation target was of 3.5 per cent +/- 1 per cent, now, National Bank of Romania (BNR) Governor Mugur Isarescu says inflation rate will be of around 8 per cent instead, to be incorporated in the agreement struck with the International Monetary Fund (IMF).

Addressing a specialized forum, the BNR governor said that, although the new rate is not the latest BNR projection, it has nevertheless been conveyed to the IMF given it becomes a criterion to be met under the agreement with the international financial institution, Mediafax reports. "We have a figure projection within which we have to stay, given it's being a criterion," Isarescu said, adding he is hopeful inflation rate late this year will be lower than the level Romania must comply with according to the IMF agreement.

The central bank last week kept the monetary policy interest rate at 6.25 per cent, after government announced a rise in the Value Added Tax (VAT) from 19 per cent to 24 per cent, and stated its decision to act towards curbing the effects of those measures and to keep inflationist forecasts at lower levels. The IMF Board approved the inflation target being revised up from 3.5 per cent to 7.9 per cent, after VAT went up to 24 percent.

The BNR governor mentioned the 5 per cent VAT increase might lead to prices going up 4.2 per cent, if the rise were comprehensive. However, according to Mr. Isarescu, "the consumption basket contains products charged a VAT of 9 per cent, medical items, books, hotel services, which make up about 5 per cent of the basket. Also, VAT zero products - medical services, cinema and theatre tickets, which account for 4 per cent. As a result, also arithmetically speaking, the full spread would come to 3.9 per cent," the BNR governor specified.

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