As long as the Government pursues fiscal consolidation bycutting spending as well as evasion, and by extending the scope oftaxation, there is no reason for the monetary policy to begin acycle of strengthening, and the NBR (National Bank of Romania)could even bring the interest rate down by 0.25-0.5 percentagepoints by the end of the year, after the price increases generatedby the VAT raise are assimilated, says Claudiu Cercel,vicepresident in charge of financial markets at BRD-SocGen.
The NBR has kept the key interest rate at 6.25% after theannouncement of the VAT raise to 24%, with the next monetary policymeeting scheduled for August 4th.
"The effects of raising VAT - which are not all bad consideringthat it is in fact consumption that prompted many of the currentimbalances- will pass fairly quickly, so the interest rate willprobably stay at 6.25% in August, and could further slip until theend of the year, by 25-50 basis points. But this also depends oninternational developments, which will continue to affect usgreatly."
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