Moldova's central bank maintained its base rate at 13.5 percent, confirming that it still expects the depreciation of the leu currency to increase inflationary pressures, causing inflation to temporarily breach its upper target range of 5.0 percent, plus/minus 1.5 percentage points.
The National Bank of Moldova, which raised its rate by 500 basis points at an extraordinary board meeting on Feb. 17, added that its policy stance was still affected by weak economic activity in the euro area along with the recession in its main trading partner of Russia, which leads to the risk of lower foreign income that may influence the exchange rate and thus inflation.
"The escalation of geopolitical tension in the region could result in additional inflationary pressures," the central bank said.
The leu currency tumbled by 16.5 percent against the U.S. dollar in 2014 and continued to fall until the middle of March. Since then it has appreciated, trading at 4.07 to the dollar today, down 9 percent since the start of the year.
The annual inflation rate of Moldova - a former Soviet state located between Romania to the west and Ukraine to the north, south and east - jumped to 6.5 percent in February from 4.7 percent in January and December, mainly due to higher food prices. The core inflation rate rose by 3.2 percentage points to 10.2 percent in February, the bank said.
Moldova's Gross Domestic Product expanded by 4.6 percent in 2014, sharply down from 8.9 percent in 2013 due to a modest contribution from agriculture and the deterioration of economic activity in Russia and the imposition of its embargo.
The depreciation of the leu helped support growth last year along with the export facilities offered by the European Union that helped offset some of the restrictions imposed by Russia, the bank said.