Moldova’s c-bank cuts monetary policy rate by 0.5pp to 19%

By bne IntelliNews February 26, 2016

Moldova’s central bank cut the monetary policy interest rate by 0.5pp at its February 25 monetary policy board meeting, after maintaining the rate at this particularly high level since last August.

The rate cut follows the moderation of headline inflation in line with projections, the central bank explained. The monetary authority wants to bring headline inflation within the 5% +/-1.5pps band under its inflation targeting policy.

Required reserves ratios were maintained at 14% for foreign liabilities and 35% for local currency liabilities.

Moldova’s central bank has gradually tightened its monetary policy over nearly one year from the end of 2014 to August 2015, raising the monetary policy rate from 3.5% to 19.5%. The move was explained by the inflationary pressures generated by the local currency’s depreciation in early 2015 amid problems in the banking sector that culminated with the liquidation of three banks and losses equivalent to 10% of GDP that will be paid from the state budget.

However, inflation eased by 0.2pp m/m to 13.4% January 2016, the central bank commented. The decrease of the annual inflation rate in January is in line with the latest forecast from the bank published in February 2016, and validates the correctness of monetary policy decisions taken in 2015.

The central bank cut in February its forecast for this year’s average inflation to 10.1% y/y, from 11.9% projected in November. Average inflation will further ease to 6.6% y/y in 2017, according to the latest Inflation Report published by the central bank on February 4. Headline inflation will return within the 5%+/-1pp inflation targeting band in Q3, 2017.

The central bank will monitor macroeconomic developments with a view to easing monetary policy sometime during 2016, outgoing governor Dorin Dragutanu told journalists on February 4. The central bank came recently under public criticism for its tight policy that is prevents economic recovery. The average loan interest rate increased to 15.6% in December 2015 from 10.95% one year earlier.


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