Moldova’s central bank, the National Bank of Moldova (BNM), cut the refinancing rate by 4pp to 10% on May 11, several hours after the statistics bureau, INS, announced that the headline inflation fell by 3.9pp to 18.1% in April.
The step was the fourth rate cut since December when the monetary policy rate was 21.5%. Inflation peaked at 35% in September and has been steadily sliding since then.
The cut was broadly expected but the magnitude was unusual, although it came after two consecutive 3pp rate cuts in February and March.
Expressing positive expectations in regard to disinflation, the BNM seems now to prioritise the real sector and the government that face high financing costs at a difficult time for both of them. Moldova’s economy was badly hit by several factors, including restrictive monetary policy, in H2 last year when the GDP plunged by 10.2% y/y.
“Aggregate demand will remain negative until the beginning of next year due to the deterioration in household consumption funding, weak external demand,” the BNM’s report published along with the policy decision reads. Demand will be stimulated by a modest positive fiscal momentum, the monetary authority said, explaining the logic behind the move.