The central bank has lowered the monetary policy rate from 3% at the beginning of the year to 1.75% at present, in part reflecting weaker-than-expected inflation and activity. Monetary policy is projected to remain accommodative until the 3% inflation target is achieved and the labour market strengthens.
The fiscal stance is broadly appropriate, with the planned gradual consolidation in line with the fiscal rule. The planned fiscal reform, currently being discussed in the legislative assembly, would boost revenues by increasing the personal income tax and the property tax for high-income households. The reform would also spur investment thanks to a simplified tax code for SMEs and accelerating depreciation. Recently announced policy measures to further increase social expenditures, primarily publicly-funded pensions and an increase in the minimum wage for the most vulnerable, have been appropriately accommodated within the fiscal rule and will sustain private consumption.
Stronger and more inclusive growth requires keeping up structural reform momentum. Reducing labour market segmentation between stable and precarious jobs and integrating the recent flow of migrants, streamlining licensing and regulations, and increasing competition in network services remain key. The government has a welcome agenda to boost business investment mainly through administrative changes to help with licensing and procedures for big projects, the extension of bankruptcy law to smaller companies, the legal recognition of access to electronic signatures and the relaxation of requirements for hiring foreign workers. Further expansion of childcare facilities would boost still low female employment in paid jobs and help close the persistently high gender-wage gap. Easing regulations on open-ended labour contracts while extending unemployment insurance would tackle labour-market segmentation and reduce inequalities.
