Romania Ctrl Bank Sees CPI Up By 3% After VAT Increase

Isarescu said the second-round effects of the VAT increase are estimated to lead to modest price raises, of around 1%.

„The first-round effect will be somewhere at 3%. Our specialists are looking at a 2.9% scenario, because of the weak demand and the low taxation rate in rural areas,” Isarescu said during a presentation of the quarterly inflation report.

„The International Monetary Fund was talking about zero effects in the second round, but we are not as optimistic,” he added.

Romanian authorities recently raised the sales tax level to 24% from 19% to boost revenue and keep the budget deficit below 6.8% of the gross domestic product.

Following the measure, the central bank left its key rate unchanged at 6.25% and announced plans to limit possible second-wave effects triggered by the higher VAT rate.

According to IMF mission chief Jeffrey Franks, the VAT increase will have a temporary effect on inflation and the central bank shouldn’t change its monetary policy because of it.

Franks said the central bank should remain vigilant regarding possible second-round effects of the sales tax increase, but mentioned these effects, if any, will be less pronounced compared with the first-round ones.