Thursday, July 1, 2010

AP: Romania's interest rate unchanged

BUCHAREST, ROMANIA Romania's central bank kept its benchmark interest rate at 6.25 percent Wednesday, after already cutting it four times this year in an attempt to revive the country's ailing economy. 

Analysts had predicted the interest rate would stay unchanged after officials announced sales tax would increase from 19 percent to 24 percent. The cuts in interest rates were meant to stimulate investment and consumption, which have shrunk during the economic crisis. The recent move is meant to keep inflation under control. 

The inflation target for 2010 is 3.5 percent, but it is expected to grow due to the increase in value-added tax. Romania is struggling to come out of recession when booms in construction and commerce collapsed last year. Its economy contracted by 7.1 percent in 2009. The country negotiated a euro20 billion ($24 billion) bailout led by the International Monetary Fund. 

The IMF board will meet Friday to discuss the loan disbursement to Romania, after the country adopted tough austerity measures to keep the budget deficit at the agreed 6.8 percent of GDP. Public sector wages were cut by one-fourth while the VAT was hiked to 24 percent, after plans to slash pensions by 15 percent were turned down by the Constitutional Court.

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