Romania's central bank held its monetary policy rate steady at 1.75 percent, saying the impact on inflation from the cut in Value Added Tax was stronger than expected and is masking the build-up of inflationary pressures given the faster closing of the negative output gap, a gradual rise in demand and a rise in unit labor costs.
The National Bank of Romania (NBR), which cut its rate by 350 basis points from July 2013 through May 2015, added that the new quarterly inflation report includes a "substantial" revision of the expected path of inflation in light of the fiscal measures.
The new inflation forecast, which will be presented on Aug. 6, see inflation remaining negative over the next three quarters before turning positive but still below the lower bound of the central bank's inflation band until the beginning of 2017.
In June Romania's inflation rate fell to minus 1.55 percent from 1.16 percent in May as the June 1 cut in the VAT rate on food items to 9 percent from 24 percent affected nearly 30 percent of the goods included in the consumer basket used to gauge inflation.
Meanwhile, the NBR said economic growth was gaining momentum, driven by a "substantial pick-up in final consumption and by the positive investment dynamics," helped by a recovery in lending.
The National Bank of Romania issued the following statement: