Central bank board members reiterated during the meeting that preserving confidence in the domestic currency, in the context of widening twin deficits, was a key element of monetary policy conduct in 2020, implying a gradual and sustainable reduction in interest rates on the money market and on leu-denominated loans.
Board members repeatedly underlined that the uncertainties associated with the new outlook continued to be extremely elevated, triggering two-way risks to the future inflation path, amid the new pandemic wave, but especially in the absence – in the current electoral context – of the draft budget for 2021 outlining the future fiscal and income policy coordinates.
Board members discussed at length about public finances and the high uncertainty associated with the related outlook, also in the electoral context, conducive to risks to macroeconomic developments and stability over a longer time horizon. Concerns were voiced about the sizable, possibly above-expectations, increase in the 2020 budget deficit, under the impact of the pandemic crisis and the adopted support measures, as well as a result of the rise in some permanent expenditures, with knock-on effects on future budget executions, as well as on financing needs and costs.
The central bank board unanimously decided to keep the monetary policy rate at 1.5%. It also decided to leave unchanged the deposit facility rate at 1% and the lending (Lombard) facility rate at 2%. The board also unanimously decided to maintain the minimum reserve requirement ratio on leu-denominated liabilities at 8%.
Given the developments in foreign currency lending and the adequate level of forex reserves, the board unanimously decided to cut the minimum reserve requirement ratio on foreign currency-denominated liabilities of credit institutions to 5% from 6% starting with the 24 November – 23 December 2020 maintenance period. The measure also aimed to continue the harmonization of the minimum reserve requirements mechanism with the relevant standards and practices of the European Central Bank and the major central banks across the European Union.