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Romania Central Bank Raises 2011 Inflation Forecast To 3.1%

Romania's central bank revised upward its inflation forecast for 2011 to 3.1% from the previous 2.8%, central bank governor Mugur Isarescu declared in a presentation of the inflation report Friday.

The bank has already announced a significant revision of its forecast for this year's inflation, after the recent five percentage point increase in the value added tax level. Romania's annual inflation is currently estimated at 7.8% to 8% for 2010, compared with the previous forecast of 3.7%. The inflation might even rise above 8% by the end of this year, but it will decrease shortly after, Isarescu told a news conference Friday.'By the end of 2011 ... the inflation will enter the variation interval, around 3%, and stay near that level,' the governor said. The forecast is based on current data and estimations that the second-round effects of the VAT increase will be modest, Isarescu added.Romania's Government raised the VAT ratio from 19% to 24% starting with July 1, to boost revenue and keep the budget deficit below 6.8% of the gross domestic product.

Euro Adoption Target Needs Reexamination

Romania's central bank must reexamine its self-imposed target for euro adoption as of January 2015 to see if the deadline is still feasible, central bank governor Mugur Isarescu said Friday.Speaking in a news conference, Isarescu said the central bank doesn't give up its goal just yet, because it can be a valuable catalyst for policy coherence.'However, once the (macroeconomic) evolution steers to a visibly different direction and the target is no longer believable, then of course we have to reexamine it,' Isarescu told reporters.Romania wants to adopt the euro in January 2015, but its plans might be put off because of weak economic performance.Late March, the International Monetary Fund said Romania could adopt the European currency later than planned, adding that the country needs to consolidate its monetary and fiscal policies to stay on track.

Governmentt Spoke Too Soon About Public Sector Pay Hikes

Romanian authorities spoke too soon when they said public wages might increase by 10% on average in 2011, because there can be no pay raises without a reshuffling of the sector, central bank governor Mugur Isarescu said Friday.Speaking in a news conference, Isarescu said the government must first honor its commitment to reduce the number of public employees before discussing pay hikes.

Prime Minister Emil Boc said Wednesday that public wages could increase by 10% on average compared with the July level, provided the 13th bonus wage is eliminated. Boc added additional pay hikes may be decided once the restructuring process is completed.The government decided to cut public salaries by 25% as of July, part of an austerity package aimed at reducing expenditure and keeping the budget deficit below 6.8% of the gross domestic product.According to Romania's letter of intent to a EUR13 billion loan agreement signed with the International Monetary Fund, the authorities also pledged to slash the number of public employees by 74,000 people by year-end and further reduce their number by at least 15,000 over the course of 2011.The government already sacked 27,000 staff in the public sector so far this year.

CPI Up By 3% After VAT Increase

The Romanian Government's recent move to raise the value added tax level by five percentage points will likely trigger a 3% increase in consumer prices, central bank governor Mugur Isarescu said Friday.

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.

Sursa: http://www.actmedia.eu

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