Moldova raises rate 3rd time to ease inflation pressure

     Moldova's central bank raised its rate for the third time this year, saying it "continues to gradually tighten monetary policy in order to mitigate the inflationary pressures generated by the second-round effects of global price growth, production and distribution costs, energy resources and food."
     At an extraordinary meeting of the National Bank of Moldova's (NBM) executive board, the base rate was raised by another 85 basis points to 5.50 percent and the rate has now been raised 2.85 percentage points this year following earlier hikes in September and July.
    NBM also narrowed its interest rate corridor by 50 basis points to 2.0 percent, with the rate on overnight deposits now 3.50 percent from 2.15 percent and the rate on overnight loans 7.50 percent from 7.15 percent.
    The simultaneous reduction in the corridor rates is aimed at motivating consumers' preference for savings instead of immediate consumption amid the sharp revival in economic activity in the first 9 months of the year, the central bank said.

    Moldova's inflation rate rose for the 7th month in a row to 4.6 percent in August from 3.5 percent in July, still within NBM's inflation target of 5.0 percent, plus/minus 1.5 percentage points.

    However, the central bank said its rate hike also took into account pressures from aggregate demand, which is supported by the rise in incomes and the rise in consumer and mortgage loans.

     Moldova's gross domestic product jumped 21.5 percent year-on-year in the second quarter of this year, up from 1.8 percent growth in the first quarter.

    The bank did not give a specific guidance about its future policy decisions, saying it will continue to monitor domestic and international developments and "is ready to come up with the necessary measures to meet the fundamental objective of ensuring price stability."

    The National Bank of Moldova issued the following statement:

     

"NBM continues its monetary policy measures to slow down the prices growth rate

The Executive Board of the National Bank of Moldova (NBM) voted in the extraordinary meeting of 5 October 2021 to increase the core rate applied to the main short-term monetary policy operations up to 5.5 percentage points.

At the same time, the corridor rate was reduced by 0.5 percentage points - from 2.5 percent to 2.0 percent. Thus, the rate on overnight deposits will be 3.5 percent, and overnight loans 7.5 percent.

The NBM continues measures to gradually tighten monetary policy in order to mitigate the inflationary pressures generated by the second-round effects of global price growth, production and distribution costs, energy resources and food. At the same time, the NBM took into account the pressures from domestic aggregate demand supported by the increase of the population's income (salary fund, social assistance, remittances etc.) and the increase in the volume of consumer and mortgage loans.

Simultaneous reduction of the corridor rates with the increase of the core rate is calibrated to motivate consumers' preferences for savings from immediate consumption, in the context of the sharp revival of economic activity in the first 9 months of this year.

The National Bank of Moldova will continue to closely monitor the developments in the domestic and international environment and is ready to come up with the necessary measures to meet the fundamental objective of ensuring price stability."

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