An important change is foreseen in the future conduct of fiscal and revenue policy, but significant uncertainties persist regarding the size and instruments of budgetary consolidation this year and in the future, according to the minutes of the monetary policy meeting of the Bank’s Board of Directors. National Team of Romania from January 15, 2021, informs Agerpres.
“However, an important change is foreseen in the future conduct of fiscal and revenue policy, Council members have repeatedly shown, including in relation to the latest medium-term forecast of the NBR, given the potential target of budget deficit for 2021 and some measures already announced / adopted by the new Government – such as the one on the temporary capping of salaries in the budget sector – make it possible to initiate this year the necessary budgetary consolidation, with favorable implications including the sovereign risk premium and, finally, financing costs.
However, significant uncertainties remain over the size and instruments of this year’s budget consolidation. and in the future, the members of the Council agreed, at least until the approval of the public budget for 2021, especially in the conditions of the large increase, possibly above expectations, of the budget deficit in 2020, under the impact of the pandemic crisis and the support measures adopted. effect of the increase of some permanent expenses “, mentions the quoted source.
According to the NBR, it was reiterated that, in terms of economic impact, the counterweight given by attracting European funds allocated to Romania through the economic recovery package and the Multiannual Financial Framework 2021-2027, agreed at EU level, is essential.
Regarding the cyclical position of the economy, the members of the Council agreed that in the whole of the quarters IV 2020 and I 2021 a recovery of the economic contraction is likely to be similar in size to that forecast in November 2020, but in a different quarterly distribution, under conditions of recovery. uninterrupted economic activity over the period – marginal in the first interval, compared to the slight interruption or contraction predicted previously, and relatively dynamic in the first three months of 2021, but visibly slowed compared to the previous forecast. As a result, instead of stagnating, the negative GDP gap is likely to continue to narrow slowly during this period, but remains slightly lower than previously anticipated, given that it closes slightly below expectations, albeit a very consistent one. the third quarter of 2020, remarked the members of the Council.
“It was also noted that, according to the latest statistics, the economic recovery in the fourth quarter of 2020 – much slower than the previous period and involving a slight re-amplification of the decline in annual terms of the economy – accentuates its unequal structure from a structural perspective. coronavirus pandemic and new restrictions imposed domestically and in other EU countries, however less severe than in the first wave, so that in October-November, retail sales fully recovered from the contraction in the spring, rising visibly February 2020 and remaining in positive territory as annual dynamics, while services provided to the population have significantly amplified their decline compared to the same period last year. double-digit, while industrial production has almost interrupted its trend restricting the decline in annual terms “, the document says.
In turn, the trade deficit has substantially reduced its contraction compared to the similar months of 2020, in the conditions of a slightly sharper attenuation of the annual decline in imports, compared to that highlighted in the case of exports of goods and services. Even against this background, the current account deficit increased its advance over the same period last year.
“At the same time, increased uncertainty and risk are coming from the external environment,” said Council members, given the worrying rise in the rate of coronavirus infection in some European countries and the recent tightening of mobility restrictions, including in the context of higher strains. high level of contagion, likely to delay the economic recovery in the euro area, probably until the vaccination campaigns show their effects “, it is said in the BNR minute.
The members of the Council unanimously appreciated that the whole context analyzed justifies the reduction of the monetary policy interest rate by another 0.25 percentage points, taking into account also the gaps in the transmission of the impulses of the monetary policy interest rate.
“It was considered that such a calibration of the conduct of monetary policy is likely to support the recovery of economic activity on the horizon, in order to bring and consolidate in the medium term the annual inflation rate in line with the inflation target of 2.5% ą1 percentage point , in conditions of protection of financial stability “, it is also shown in the document.