Thursday, January 28, 2016

Moldova holds rates but expects to slowly ease in 2016

    Moldova's central bank left is base rate steady at 19.50 percent, saying last year's tightening of monetary policy is still spreading throughout the economy and should have the effect of tempering inflation this year, paving the way for rate cuts.
    The National Bank of Moldova (NBM), which raised its rate by 13 percentage points in 2015, also approved its latest inflation forecast, calling for inflation in 2016 and 2017 at 10.1 percent and 6.6 percent, respectively, and then returning to the bank's target range in the third quarter of 2017.
    The NBM, which targets inflation of 5.0 percent, plus/minus 1.5 percentage points, said the detailed outlook for inflation will determine the appropriate time to start slowly easing its monetary policy stance in 2016.
    The central bank's first inflation report for 2016 will be published on Feb. 4.
    Moldova's inflation rate rose further to a 2015-high of 13.6 percent in December from 13.5 percent in November, with the central bank attributing the acceleration to the impact on food prices from currency depreciation in late 2014 and throughout 2015.
    Moldova, a former Soviet state located between Romania and Ukraine, has seen its leu currency depreciate since mid-2011 but the fall picked up speed in the second half of 2014.
    Last year it fell almost 21 percent against the U.S. dollar and it has continued to drop this year, trading at 20.54 to the dollar today, down 4 percent since the start of the year.
    The central bank noted that the economy entered negative territory in the third quarter of 2015, when Gross Domestic Product shrank by an annual 3.7 percent, adding this was due to lower household consumption amid stagnating income, the decline in agriculture and diminishing external demand from early 2015.


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