Romania’s inflation could reach 8% at year-end, IMF official says

The inflation generated by the value added tax (VAT) increase should not worry anyone, as it is not a monetary inflation, said Lybek. He added the Fund estimates inflation to reach about 8 percent at year-end, plus or minus one percentage point, but mentioned this is IMF’s estimate, not the central bank’s (BNR) target. “BNR settles the target,” the official told The Money Channel.

Lybek also mentioned the Fund is maintaining the budget gap figure of 6.8 percent of the gross domestic product (GDP) agreed with the government for 2010 and also the estimate on Romania’s economic contraction, of 0.5 percent.

Although the Fund deems the economy will decrease 0.5 percent this year, the figure could be revised after the visit of the IMF mission, that will take place at the end of July, Lybek said.

IMF approved on Friday the granting of the fifth installment within Romania’s external loan, worth 913 million euros. Thus, the Fund representatives approved the VAT increase from 19 to 24 percent, necessary to hike budget revenues, after the Constitutional Court rejected one of the restraint measures that was foreseeing 15 percent lower pensions. The Executive also decided to slash the salaries of public employees by 25 percent.

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