“Some board members referred to a disinflationary factor that had been recently mentioned by the European Central Bank and the Bank for International Settlements as well, namely the weakening of the transmission mechanism between industrial producer prices and consumer prices. This seemed to be brought about by the presence of global value chains, and of large retailers in particular, which internalized part of the rises in industrial producer prices, increases in labor costs included, no longer passing them on to the final price,” the minute read.
At the same time, board members remarked, however, a significant increase in the uncertainties about the short- and medium-term outlook for the fiscal and income policy stance, likely to generate enhanced uncertainties and two-way risks to the latest medium-term inflation forecast.
Those stemmed from the recently promulgated unified wage law – the enforcement of which was, however, hard to predict, given its being conditional upon the fulfillment of certain requirements – and from the new measures and legislative initiatives announced in respect of taxation, of wages and pensions, as well as of the functioning framework for firms, with potential implications on the nature of fiscal policy and on the fiscal impulse, as well as on companies’ and households’ confidence and incomes, and therefore on the investment and consumption behavior.
The multitude of uncertainties and the absence of insight on the concrete measures and the implementation calendar made it impossible as yet to assess the potential macroeconomic and structural effects, board members said.
The central bank board decided on July 3 to keep the benchmark interest rate at an all-time low of 1.75% a year. It also kept minimum required ratios on leu deposits and forex liabilities at 8%.