Thursday, July 25, 2013

Moldova holds rate steady, sees deflation a main risk

    Moldova's central bank held its basic rate steady at 3.5 percent, along with its other main rates, saying the mains risk is deflation from Europe, Russia and international food prices while inflationary pressures could arise from a recovery in domestic demand and higher oil prices from ongoing tensions in the Middle East.
    The National Bank of Moldova (NBM), which last cut its rate by 100 basis points in April, said the aim of its current stance was to boost domestic demand by stimulating lending and thus help mitigate disinflationary pressures, keeping inflation close to the medium-term target of 5.0 percent, plus/minus 1.5 percentage points.
    The central bank added that if there is persistent supply of foreign currency, it would intervene in foreign exchange markets "carefully" without jeopardizing the inflation target.
    Moldova's inflation rate eased slightly to 5.5 percent in June from 5.7 percent while the country's Gross Domestic Product returned to positive territory in the first quarter after contracting by 0.8 percent in 2012 due to severe drought and less demand from Romania and Russia.

    Annual growth in the first quarter was 3.5 percent, up from shrinkage of 2.5 percent in the fourth, and the bank said the revival of economic activity was due to higher foreign demand and a slight recovery in domestic demand due to higher disposal income. Government consumption contracted by 1.5 percent.
    Inflation is forecast to average 4.3 percent this year and 3.8 percent in 2014, down from an average of 4.7 percent in 2012, and over the next eight quarters inflation is forecast to remain within the central bank's target range.



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