The IMF managing Council approved the rectification of the inflation rate for 2010 set by the stand-by agreement with Romania, namely from 3.5% to 7.9%, after Romanian authorities raised the VAT from 19 to 24%, IMF chief of mission to Romania Jeffrey Franks told Romanian news agency Mediafax.

According to Franks, the decision was taken during the meeting on Friday. The target was raised by 4-4.5%, so the fluctuation will reach 7.9%. Franks said the IMF expected the VAT increase impact to have a single impact on prices, which is to gradually disappear during the course of next year, leaving no persistent inflation pressures.

The Romanian Central Bank (BNR) maintained the monetary policy interest rate to 6.25% on Wednesday following the Government's announcement of the austerity measure to raise the VAT from 19% to 24%. BNR said it would interfere to limit the effects of the second impact. BNR's inflation target for 2010 is 3.5%, plus/minus 1%.

The IMF will not change Romania's GDP evolution forecast significantly for this year, Jeffrey Franks said. Currently, the Fund foresees a 0.5% drop. The Fund's experts are going to analyse the latest data on Romania's economy and alter, if necessary, the forecast during the next evaluation mission to take place end of July.

Franks said an economic increase is still in the next year's cards and that the Fund's experts were expecting a quarterly increase by the end of this year. He believes it would have been for the better if Romania had had room for fiscal stimuli at the beginning of the crisis. But by the time the economic crisis reached Romania, the state already had a big budget deficit.

Franks noted that the IMF board were impressed by the speed at which the Romanian Government found an alternative after the Constitutional Court ruled out the cut in pensions was unconstit