Moldova’s consumer price inflation eased in line with expectations to 5.4% y/y in February from 6.5% y/y in January and 7.3% y/y in December, the statistics bureau announced on March 12.
The main inflationary driver remains food prices, as prices of fruits and vegetables increased by 26%-28% y/y as of February at a marginally higher pace than in January. Core inflation will remain stable during the whole of 2018 within the 1.5%-2.0% band it entered around mid-2017, the bank forecast in its revised February quarterly inflation outlook. Food and administered prices will remain the key drivers.
The inflation slowdown in January-February confirms the central bank’s expectations and creates room for further cuts in the monetary policy rate (6.5% at this moment) — depending, however, on the completion of reforms in the banking system. Moldova has gradually cut the monetary policy rate from 19.5%, which it reached in September 2015 after the country's $1bn banking fraud was revealed and the local currency plunged. In its latest decision on March 1, the central bank maintained the policy interest rate (used to drain one-week funds) at 6.5%.
Moldova’s central bank cut the projection for average inflation in 2018 from 4.0% y/y to 3.7% y/y but expects prices to accelerate at 4.7% y/y in 2019, according to the February Inflation Outlook made public by the monetary authority. The country targets 5%+/-1.5pp inflation.