Thursday, October 27, 2016

Moldova cuts rate 50 bps, raises 2017 inflation forecast

    Moldova's central bank cut its base rate by another 50 basis points to 9.0 percent, along with its overnight rates, and lowered its 2016 inflation forecast but raised the 2017 forecast.
    The National Bank of Moldova (NBM) has now cut its rate by 1,050 basis points this year as it continues to unwind rate hikes totaling 1,600 points between December 2014 and August 2015 in response to a plunge in the exchange rate of the leu and accelerating inflation.
    The central bank said it now expects inflation to average 6.3 percent this year, down by 0.4 percentage points from its forecast in August, and 4.6 percent next year, up from 4.8 percent.
     Moldova's inflation fell to a 2016-low of 3.0 percent in September from 3.6 percent in August, with the NBM saying higher international food prices and raw materials, along with the volatility in oil prices, are among the external risks to its forecast.
    Further risks of higher inflation stem from the impact of changes to excise duties next year, along with the harvest.
    Moldova's economy continued to recover in the first two months of the third quarter, with exports up by an annual 16.5 percent in July-August, imports up by 4.9 percent, retail trade turnover up by 4.6 percent while volume of services dropped by 4.4 percent, the central bank said.
    In addition, real average wages grew by an annual 8.4 percent in August while the average rate on new loans in leu in June eased by 0.56 percentage points to 13.59 percent.
    Moldova's Gross Domestic Product grew by an annual rate of 1.8 percent in the second quarter of this year, up from 0.8 percent in the first quarter.

    The National Bank of Moldova issued the following statement:

"The Executive Board of the National Bank during the meeting of 27 October 2016 adopted the following decision:
1.  It reduces base rate applied on the main monetary policy operations on short term by 0.5 percentage points, from 9.5 up to 9.0 percent annually .
2. It reduces interest rates: 
- overnight loans by 0.5 percentage points, from 12.5 up to 12.0 percent annually; 
- Overnight deposits by 0.5 percentage points, from 6.5 up to 6.0 percent annually.
3. Maintain the required reserves from means attracted in freely convertible currency at 14.0 percent of the base.
4. Maintain the required reserves from means attracted in MDL and non-convertible currency at the level of 35.0 percent of the base.
The Executive Committee of NBM approved the Inflation Report no. 4, 2016 which will be presented at a press conference on October 27, 2016.
Analysis of the most recent statistical data reveals downward dynamics of the annual inflation rate for the ninth consecutive month and placing it below the lower limit of the variation band of ± 1.5 percentage points to the inflation target of 5.0 percent in September.
The annual inflation rate in September 2016 reached the level of 3.0 percent, 0.6 percentage points lower from the previous month.
In September 2016, the annual rate of core inflation in January  was by 0.8 percentage points lower than in the previous month and constituted 6.7 percent.
The dynamics of macroeconomic indicators in the first two months of the third quarter of 2016 outlines signals continued revival of economic activity in the reference period. During July-August 2016, exports increased compared to the same period of 2015 by 16.5 percent, imports by 4.9 percent and industrial output grew at an average level of 0.9 percent. At the same time, the volume of goods transported increased on average by 4.6 percent, the turnover for the retail trade by 4.6 percent and the volume of trade in services decreased on average by 4.4 percent.
From the perspective of consumer demand, in August 2016, the annual growth rate of real average wages in the economy was 8.4 percent, 7.5 percentage points higher than in July 2016. Money transfers to individuals through banks Moldova decreased in January-September by 5.6 percent in the month of September 2016 and by 0.3 percent in nominal terms compared with similar periods of 2015.
Processes credit and savings in the third quarter of 2016 have evolved differently. The volume of new loans during the reporting period decreased by 6.5 percent and new attracted deposits increased by 10.5 percent from the previous year. Total balances of loans at the end of September decreased by 16.4 percent compared to the end of September last year. At the same time, total balances of deposits over the last twelve months grew by 3.4 percent.
The average rate on new loans in national currency decreased by 0.56 percentage points from the level recorded in June 2016 constituted 13.59 percent. The rate on deposits attracted in MDL decreased by 3.11 percentage points to a level of 7.60 percent in September 2016.
According to the new round of forecasting average annual inflation rate for the years 2016 to 2017 is placed at 6.3 per cent, respectively, 4.6 percent.Depending on the complexity of the risks and uncertainties associated with the evolution of inflation in the medium term, the NBM has reshaped forecast average inflation compared to the previous forecast published in August 2016, reducing it by 0.4 percentage point for 2016, respectively, increasing it by 0.2 percentage points for 2017.
The monetary policy stance continues to emerge depending on the risks and uncertainties associated with developments in the external environment and internal. External risks are associated inflationary likely increase the international prices for food and raw materials along with the uncertainty related more pronounced volatility of the international price of oil. Potential risks and uncertainties indigenous to inflation arising from the impact of changes in excise duties in terms of fiscal policy stance for 2017, respectively, from the 2017 harvest.
In these circumstances, the members of the Executive Committee of NBM meeting of 27 October 2016 decided to reduce the monetary policy interest rate by 0.5 percentage point, from 9.5 to 9.0 percent annually.
That decision aims to maintain inflation close to the target of 5.0 percent over the medium term, with a possible deviation of ± 1.5 percentage points. Calibration gradual monetary policy stance aims at ensuring real monetary conditions appropriate support lending and savings and boosting domestic demand , combined with adapting domestic economic environment continued volatility and uncertainty in the external environment.
The dynamics of the output gap over the next eight quarters will remain negative. Developments in economic activity below potential disinflationary pressures will cause increased aggregate demand.
A more detailed assessment of the macroeconomic situation, the medium-term inflation forecast and possible risks and challenges that confronts monetary policy in subsequent periods will be presented in the Inflation Report no. 4, 2016. This report will be published on 27 October 2016 according to schedule.
BNM will continue to adequately manage excess liquidity through sterilization operations as scheduled.
Meanwhile, the National Bank will propose further liquidity to banks, as scheduled for 2016 through repo operations within 14 days, fixed rate equal to National Bank base rate plus a margin of 0.25 percentage points.
We reiterate that BNM will monitor and anticipate further developments in domestic and global economic developments so that, through specific flexibility operational framework of inflation targeting strategy to ensure price stability over the medium term.
The next meeting of the Executive Committee of the National Bank on monetary policy will take place on November 24, 2016 as scheduled."


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