Thursday, February 26, 2015

Moldova maintains rate, still sees inflation above limit

    Moldova's central bank maintained its key rate, including the base rate at 13.5 percent, with its policy stance still determined by the forces of inflationary pressures stemming from a depreciation of the leu currency and the economic weakness of its main trading partners.
    The National Bank of Moldova, which raised its rate by 500 basis points at an extraordinary board meeting on Feb. 17, repeated it still expects consumer price inflation to temporarily breach the upper limit of its target range due to the impact of currency depreciation on import prices and utility tariffs.
    The National Bank targets inflation at a midpoint of 5.0 percent, within a lower limit of 3.5 percent and an upper limit of 6.5 percent, and said its decision to hold its rate steady was aimed an anchoring inflation expectations, which it fears will rise, at that level.
    The headline inflation rate in Moldova - a former Soviet state located between Romania to the east and Ukraine to the north, south and east - was steady at 4.7 percent in January and has remained within the central bank's target range since February 2012.
    In January, the central bank forecast an average inflation rate of 5.8 percent this year and 6.1 percent in 2016.
    After tumbling by by 16.5 percent against the U.S. dollar in 2014, the leu continued to drop until Feb. 10 when it fell to over 19.0 to the dollar, down over 30 percent since the start of 2014 and down 18 percent this year alone.
    But since Feb. 10 the leu has stabilized and risen slightly, hitting 18.4 to the dollar today, in response to rate hikes, low liquidity of foreign exchange and a new prime minister.
    Remittances from foreign workers to Moldova was down by an annual 29.2 percent in January, slightly better than a 30 percent decline in December, while exports and imports in 2014 fell by 3.7 percent and 3.2 percent, respectively, compared with 2013, the bank said.
    However, industrial production and the transport of goods increased by 7.3 percent and 4.0 percent, respectively, in 2014, the central bank said.



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