Sunday, September 5, 2021

Moldova raises rate 2nd time on persistent inflation

     Moldova's central bank raised its main interest rates for the second time, saying there is still a risk of persistent inflationary pressures and it will monitor the risks associated with inflation and "adopt the necessary monetary policy measures in due course."
     The National Bank of Moldova's (NBM) executive board on Sept. 3 unanimously raised the base rate by another 100 basis points to 4.65 percent and has now raised it 200 points this year following the previous hike on July 30.
     The NBM also raised the rate on its other main rates, pushing up the rate on overnight loans and deposits by 100 basis points to 7.15 percent and 2.15 percent, respectively.
     "The NBM's decision was taken considering the inflationary pressures from the supply and aggregate demand, as well as the risks and uncertainties caused by the evolving pandemic situation," the bank said.
     Inflation in Moldova has accelerated in the last 6 months and rose to 3.5 percent in July from 0.2 percent in January.
     The central bank expects inflationary pressures to continue due to a rise in household income, and rising consumer and mortgage credit from the easy monetary conditions that are supporting consumption to the detriment of savings.
     The bank's executive committee said its rate hike aimed to mitigate the inflationary pressures that are generated from accelerating domestic demand fuel by growth in consumption and to temper the second-round effects of the supply shock amid higher International prices and imported inflation.
     NBM's base rate has trended lower since February 2016 from 19.5 percent interrupted by a brief tightening between June 2019 to December 2019.
     In December 2019 the central bank then resumed easing its policy stance and cut the rate by 4.85 percentage points with the last cut in November 2020. 
     But with inflation rising, NBM raised its rate in July as inflation was forecast to exceed its upper limit.
     NBM targets inflation of 5.0 percent, plus/minus 1.5 percentage points
     In its latest inflation report the central bank confirmed inflation still risks topping its upper limit and is forecast to continue to rise until the first half of 2022 before decelerating.
     "We are in a new economic cycle," the bank's governor, Octavian Armasu, said when presenting the bank's August inflation report on Aug. 6, adding the inflationary process will be long.
    "All risks related to the forecast are pro-inflationary," Armasu said, adding the only exception to this are any new measures that will be imposed in the event of a new wave of the pandemic.
     "In these conditions, in order to ensure price stability, without impeding economic growth, it is important to coordinate and synchronize fiscal and monetary policy in order to implement a set of optimal policies for the economy," he added.
     Moldova's gross domestic product grew by an annual 1.8 percent in the first quarter of this year following three quarters of contraction while the exchange rate of the Moldavian leu has depreciated in recent weeks after firming from late May.
     The leu was trading at 20.98 to the euro today, up 0.9 percent this year but down 7.8 percent since the start of 2020.



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