Wednesday, October 25, 2017

Moldova lowers rate another 50 bps, sees further cuts

     Moldova's central bank cut its basic interest rate by another 50 basis points to 7.0 percent, along with other key rates, and said it expects to continue cutting the rate in coming months as inflation is expected to fall rapidly starting in the fourth quarter of this year.
      The National Bank of Moldova (NBM) has now cut its rate by 200 basis points this year and by 1,250 points since February 2016 when it embarked on a monetary easing cycle.
       The NBM said its latest inflation forecast shows inflation returning to its target in the first quarter of next year and remaining within this range for two consecutive quarters as inflationary pressures are easing due to lower economic activity.
       From the third quarter of 2018 inflation will then fall below the lower end of its target range and remain there for three quarters in a row.
       In the bank's August inflation report, the NBM had forecast that inflation would hit a maximum of 7.4 percent by the third quarter of this year before declining to a low of 3.5 percent in the fourth quarter of 2018 and the first quarter of 2019.
       The NBM targets inflation of 5.0 percent, plus/minus 1.5 percentage points.
       Moldova's headline inflation rate rose slightly to 7.6 percent in September from 7.3 percent in August while core inflation rose to 5.0 percent from 4.8 percent.
      The rise in inflation this year was mainly due to higher tariffs on regulated services and higher food prices. At the end of the second quarter, regulated prices were up 7.5 percent year-on-year.
       But the rise in inflation has also been mitigated by an appreciating exchange rate of the leu.
        Moldova's leu has firmed steadily since April 2016 and was trading at 20.4 to the euro today, up 2.4 percent this year.
       The NBM also lowered its rates on overnight credit by 50 basis points to 10.0 percent and the overnight deposit rate to 4.0 percent while the rate on required reserves in Moldova's leu and non-convertible currencies was maintained at 40 percent and the required reserve ratio on freely convertible currencies was retained at 14.0 percent.


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