Thursday, May 26, 2016

Moldova cuts rate 200 bps as inflation decelerates further

    Moldova's central bank cut its base rate by a further 200 basis points to 13.0 percent, along with its overnight rates, as inflation decelerated for the fourth month in a row.
    The National Bank of Moldova (NBM), which has now cut its rate by 650 basis points this year following cuts in February, March and April, added its executive board was unanimous in its decision, which aims to help anchor inflation expectations close to its target of 5.0 percent, plus/minus 1.5 points.
    The central bank said recent data showed "downward dynamics" in inflation although it still remains above the target at 8.3 percent in April, down from 9.4 percent in March.
    The fall in inflation was mainly due to lower food prices and core inflation - which fell to 9.7 percent from 102 percent - and in line with the central bank's forecast.
     Data from the first quarter indicates that Moldova's economy is continuing to contract, revealing persistent disinflationary pressures from demand.
    While exports in the first quarter fell by an annual 14.5 percent and imports by 8.9 percent, the central bank said there were positive developments in agriculture and industry, where output grew by 4 and 1.1 percent, respectively.
    And while the annual growth rate of real wages fell by 1.8 percent in the first quarter of this year, they were up 4.4 percentage points from the fourth quarter of last year.
    The exchange rate of Moldova's leu, which fell by almost 21 percent against the U.S. dollar last year, has been relatively stable this year and was trading at 20 to the U.S. dollar today, marginally down from 19.7 at the start of the year.
    While the base rate was cut to 13 percent, the rate on overnight loans was cut by 200 basis points to 16 percent and the overnight rate to 10 percent. The required reserve ratio on leu-currency was maintained at 35 percent while the ratio on freely convertible currency was unchanged at 14 percent.


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