Bucharest, July 08 (QNA) - The National Bank of Romania announced Tuesday that it has kept its key interest rate unchanged as the government moves to curb a large budget deficit through tax hikes, a move that could temporarily fuel inflation.

According to Bloomberg News, the central bank maintained the interest rate at 6.5percent , one of the highest in Europe, marking the seventh consecutive meeting without a change.

Despite inflation remaining well above target, policymakers in Bucharest now face new risks of rising consumer prices due to planned tax reforms deemed necessary to close the European Union’s largest fiscal gap.

Central bank officials will also need to assess the impact of austerity measures on an already slowing economy.

In its statement, the bank warned that the annual inflation rate is expected to see a "significant" increase in the coming months due to the removal of the electricity price cap, a hike in value-added tax (VAT), and increased customs duties.

These factors are expected to push inflation well beyond the levels forecast in May.

Romania’s inflation rate stood at 5.5 percent in May, while the Romanian leu fell to a record low amid uncertainty surrounding the country’s presidential elections scheduled for later this month.

The central bank currently projects year-end inflation at 4.6 percent , though this forecast is expected to be revised when the quarterly inflation report is released next month. (QNA)