Friday, November 6, 2020

Moldova cuts rate 5th time in 2020 as inflation declines

     Moldova's central bank cut its key interest rate for the fifth time this year, saying the decision was taken following the latest inflation report and aims to support domestic demand, the lending process and the economy as a whole.
     The National Bank of Moldova's executive committee unanimously trimmed its base rate by 10 basis points to 2.65 percent and has now cut it 285 basis points this year following two cuts in March followed by cuts in August and September.
     Since December 2019, when NBM began easing after raising the rate twice earlier in the year, the rate has been lowered by a total of 4.85 percentage points.
     The central bank also cut its rate on overnight loans and deposits to 5.15 percent and 0.15 percent, respectively.
     The bank's fourth inflation report will first be published on Nov. 13 but NBM said it shows inflation is expected to decrease slightly by the end of this year and then begin an upward trajectory starting in the second quarter of 2021 and reach the bank's 5.0 percent target by the end of the forecast horizon.
     "Disinflationary pressures will continue throughout the forecast horizon - fourth quarter 2020 - third quarter 2022," the central bank said, pointing to decreasing demand from anti-COVID-19 measures, declining external demand, a negative fiscal momentum since the start of the year, a real appreciation of the national currency and unfavorable weather conditions that affect the agricultural harvest.
     In September NBM had said it was possible that inflation would fall below the lower limit of its target range of 3.5 to 6.5 percent this year and remain around that level until end-2021.
     Moldova's inflation rate fell to 2.3 percent in September from 3.5 percent in August, well below this year's high of 6.9 percent in January. 
     The country's gross domestic product shrank by 7 percent in the second quarter from the first quarter for an annual drop of 14 percent.
      Against the euro, Moldova's leu has been depreciating steadily this year but the fall has picked up sharply this month and the leu was trading at 20.36 to the euro today, down 5.2 percent this year.
      Against the U.S. dollar, the leu rose from April to mid-August, but since then it has eased to trade at 17.2 today, still up 0.6 percent this year.
     Today's meeting by the bank's executive committee was delayed from the originally scheduled date of Oct. 30 due to restrictions on their work schedule and the lack of medium-term data.
     The next meeting on monetary policy will be held on Dec. 9 rather than Dec. 2, as previously scheduled.



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