IMF: Romania Ctrl Bk Likely To Resume Easing Policy In H1 2011

Romanian central bank could resume its monetary easing policy in the first half of 2011, after an increase in the sales tax introduced earlier this year has forced the process into a temporary halt, an official of the International Monetary Fund said Monday.

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The central bank decided to "pause their easing cycle for a period, because they want to see the full effects of the value added tax increase and the effects on food prices of the recent flooding," Jeffrey Franks, head of the IMF mission to Romania, told MEDIAFAX.

He said the easing policy is likely to be resumed by the first half of 2011, provided inflation decelerates toward the central bank's target band and the VAT increase doesn't produce any second-round effects.

Franks said possible second-round effects of the VAT increase depend on how much extra pressure will be in the economy.

"Right now, because the economy is still weak, there's not a lot of extra pressure," he added.

Romanian annual inflation accelerated to a two-year high of 7.7% in September, following a recent increase in the sales tax to 24% from 19%.

According to IMF estimates, the rate could peak slightly above 8% in December, before easing toward the central bank's band of 3% plus/minus one percentage point in 2011.

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