Romania's central bank left its monetary policy rate steady at 1.75 percent as the latest quarterly inflation forecast sees inflation re-entering the variation band around the target at the start of 2017 and remaining there after slipping deeper into negative territory from January through May this year due to the cut in Value Added Taxes in June 2015.
The National Bank of Romania (NBR), which cut its rate by 350 basis points and the reserve requirement on foreign exchange liabilities in January, added that inflation is expected to remain within the target variation band of 1.5 to 3.5 percent from 2017 due to a fading of the impact of the VAT rate cuts, an easing of the fiscal policy stance and the rise in wage costs.
Romania has cut its VAT rate in two steps, initially in June 2015 and then to 20 percent from 24 percent as of Jan. 1, 2016, and the February inflation report will be published on Feb. 9.
In December Romania's headline inflation rate was minus 0.9 percent, higher than minus 1.1 percent in November and the highest since consumer prices started falling in June. The gradual rise in inflation in recent months was attributed to the base effects from fuel price movements, a faster pick-up in tobacco prices and the relative weakening of the leu currency.
In its November inflation report, the central bank forecast that headline inflation would hit minus 0.7 percent at the end of 2015 and then turn positive by the end of this year at 1.1 percent before returning to the variation band.
Excluding the impact of the reduced VAT rate, the NBR said annual inflation would have neared 2 percent at the end of 2015, within its variation band around the midpoint target of 2.5 percent. In November the central bank had forecast headline inflation of 2.1 percent end-2015 and 2.7 percent end-2016.
The National Bank of Romania issued the following statement: