Moldova's central bank maintained its base rate at 10.0 percent, saying the effect of past rate cuts were still moving through the economy's various transmission channels while the most recent data revealed the downward dynamics of inflation though it remains above the bank's target.
The National Bank of Moldova (NBM) has cut its rate by 950 basis points this year, most recently by 300 points in July, as it unwinds rate hikes totaling 1,600 points between December 2014 and August 2015 in response to a plunge in the leu's exchange rate and accelerating inflation.
But since April this year the exchange rate of the leu has stabilized and inflation has been decelerating from a recent high of 13.6 percent in December 2015.
In July Moldova's inflation fell to a 2016-low of 7.0 percent from 7.4 percent in June but still remains above the central bank's target range of 5.0 percent, plus/minus 1.5 percentage points.
In its latest inflation report published on Aug. 3, the NBM forecast that inflation will remain on a downward trend until the end of this year before stabilizing around its target as the negative output gap continues to restrain price pressures for the entire forecast period and only starts to reach positive values by the end of the forecast horizon.
On average, inflation should be 6.7 percent this year, reaching a level of 3.5 percent in the fourth quarter of this year, and then decline further to 4.4 percent in 2017.
The leu was trading at 19.7 to the U.S. dollar today, unchanged from the start of this year, but down 21 percent since the start of 2015 and down 34 percent since the start of 2014.
Economic activity in Moldova continues to remain below its potential level with exports in June down by an annual 12.9 percent and imports down by 7.7 percent. Industrial output fell by 2.1 percent but retail trade turnover managed to rise by 4.2 percent at the same time that trade in services fell by 7.0 percent, the NBM said.