Wednesday, March 4, 2020

Moldova cuts rate another 100 bps amid risks from virus

     Moldova's central bank lowered its base rate by another 100 basis points to 4.50 percent to support aggregate supply in light of the "risks and uncertainties at global level determined by the repercussions of coronavirus in the global and regional economy."
     It is the first rate cut by the National Bank of Moldova (NBM) this year but the second cut since it shifted into an easing cycle in December 2019 following two rate hikes in June and July 2019 to lower inflationary pressures.
     NBM has now lowered its rate by 300 basis points since December 2019. It also cut the rate on overnight loans and deposits by 100 points to 7.5 percent and 1.5 percent, respectively.
     The central bank said the decision was taken as the expected disinflationary trend has been confirmed while the spread of the coronavirus, or COVID-19, is causing additional sources of disinflationary pressures on the consumer level.
     "At the same time, the uncertainty associated with coronavirus from the investment activity at global and regional level and a possible distortion of distribution channels could also affect the investment evolutions in the Republic of Moldova," NBM said.
     The central bank said it was monitoring the risks from the national and global economy and if necessary it would consider convening an extraordinary meeting on monetary policy, measures that have already been taken by other central banks.
     In January the central bank's executive committee left its rate steady, saying the new inflation forecast had confirmed the correctness of its rate cut in December.
     After rising for six months in a row, Moldova's inflation rate eased in January to 6.9 percent and NBM said in January the trajectory of inflation was downward and it may extend beyond the target range of plus/minus 1.5 percentage points at the beginning of this year.
      The NBM has a midpoint inflation target of 5.0 percent.


    The National Bank of Moldova issued the following statement:

"The Executive Board of the National Bank of Moldova (NBM) decided unanimously to decrease the base rate applied to the main short-term monetary policy operations by 1,0 percentage points, as from 5,5 percent to 4,5 percent annually. At the same time, the interest rates on overnight loans and deposits decreased by 1,0 percentage points up to 7,5 percent and, respectively, 1,5 percent annually.
The decision was taken in the context of confirmation of the disinflationary trend forecasted by the NBM in the Inflation Report no.1, 2020. 
This decision was based on the assessment of the recent developments and macroeconomic information on external and internal environment, considering the risks and uncertainties at global level determined by the repercussions of coronavirus in the global and regional economy. At this stage, the coronavirus spread causes additional sources of disinflationary pressures on the consumer prices level.  
At the same time, the uncertainty associated with coronavirus from the investment activity at global and regional level and a possible distortion of distribution channels could also affect the investment evolutions in the Republic of Moldova.  
Thus, the NBM decision of monetary policy easing is oriented towards supporting the aggregate supply that, within the transmission mechanism limits, will be propagated through more channels, including the lending one.  
In the following immediate period, the National Bank will monitor cautiously the external and internal risks associated with the national and global economy.  If necessary, the NBM will examine the opportunity to convene an extraordinary meeting on monetary policy, measure already applied by other central banks."

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