Wednesday, October 31, 2018

Moldova holds rate as inflation to decelerate further

     Moldova's central bank left its base rate at 6.50 percent, along with its required reserve ratios, but said keeping the rate at the current level is conditional upon the short-term trend in inflation and disinflationary pressures that should persist during the remainder of this year.
     The National Bank of Moldova (NBM) has kept its rate steady since December 2017 but raised the reserve requirement for leu funds by 250 basis points to 42.50 percent in September to mop up excess liquidity.
     The latest policy decision by the board was based on updated inflation forecasts that sees inflation declining further to 1.9 percent by the end of this year from 2.4 percent in September, the lowest rate since December 2016 but a decline that was expected by the central bank.
     Inflation in Moldova has been easing due to modest demand, changes to electricity tariffs and the continued strength of the leu against the euro.
    Next year the trajectory of inflation will be upward, the NBM said, after which inflation will decline, with aggregate demand easing and thus being disinflationary.
     The latest forecast sees inflation averaging 3.3 percent this year and 5.4 percent in 2019, with inflation above the NBM's target range of 3.5 to 6.5 percent by the end of next year.
     By 2020 inflation will return to the target range.
     The leu has been appreciating against the euro since May 2016 and was trading at 19.1 to the euro today, up 7.3 percent this year.



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