Moldova’s c-bank lowers inflation forecast, prepares for rate cut

By bne IntelliNews February 5, 2016

Moldova’s central bank cut 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. 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.

At the monetary board meeting on January 28, the central bank maintained the monetary policy interest rate at 19.5%, after having maintained the rate at the same level in three meetings held during Q4.

The central bank repeatedly hiked the rate in early 2015, from 3.5% in December 2014, in order to respond the local currency’s depreciation, which put consumer prices under pressure. The central bank makes available funds at the monetary policy interest rate plus 25bps under 14-day repo operations.

The annual rate of inflation was 13.6% in December 2015, increasing by 0.1pp compared to the previous month. The acceleration of the inflation growth rate was caused by the depreciation of the national currency at the end of 2014 and during 2015 with implications for food prices, regulated prices and core inflation. The annual rate of core inflation was 14.6% in December 2015, increasing by 0.5pp compared to the previous month.

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