The NBM reduced the base rate applied to the main short-term monetary policy operations by another 3 percentage points from 17% to 14% per annum
This decision was made by the Executive Committee of the NBM at a meeting on March 20. In addition, also by 3 p.p. interest rates on loans and overnight deposits were reduced - from 19% to 16% and from 15% to 12% per annum, respectively. At the same time, the required reserve ratio from funds raised in Moldovan lei and non-convertible currency was kept at the current level - 34% of the calculation base, and the required reserve ratio from funds raised in freely convertible currency was also kept at the current level - 45% of the settlement base. According to the NBM, this decision to ease monetary policy continues the stimulating monetary policy measures taken since the end of last year. It is emphasized that the NBM is aimed at stimulating aggregate demand, including by encouraging consumption, balancing the national economy and anchoring inflationary expectations. New macroeconomic information largely confirms the correctness of the latest NBM forecast. The National Bank indicated that annual inflation fell by 1.4 percentage points - to 25.9% in February 2023. In its structure, core inflation was 16.3%, food products - 26.5%, regulated prices - 51.5% and fuel - 21.3%. It should be noted that actual inflation turned out to be 1 p.p. above the forecast. The deviation of the actual inflation value from the forecast was mainly caused by regulated prices (+5.1 p.p.), as a result of the NBS recording in January 2023 of compensations provided to consumers for natural gas, heat and electricity. According to the NBM, tariff increases with their domino effect, the war in Ukraine and last summer's drought keep inflation well above the target level. However, disinflationary demand and earlier monetary policy measures since mid-2022 continue to dampen these factors. External demand remains weak on the back of lower and more stable prices in international energy markets. Oil and natural gas prices in Europe have fallen since the beginning of the year. While inflation is declining in most countries, monetary tightening continues to dampen secondary inflationary pressures and reduce consumption, supported by strong wage growth. The war in Ukraine and the consequences of the energy crisis in Europe continue to affect the regional economy. International food prices continue to fall as production risks and costs have declined and supply in certain segments is excessive. According to the NBM, in the IV quarter of 2022, Moldova's GDP in real terms decreased by 10.6% compared to the same period in 2021. The decline in the following activities had a negative impact on the dynamics of GDP, in particular: agriculture (-40.5%), healthcare and social assistance (-18.6%), production and supply of electricity and heat, gas, hot water and air conditioning (-34.4%), real estate operations (-11.8%) and production (-7%). A positive impact on the dynamics of GDP had an increase in the following activities: information and communication (+12.2%), financial activities and insurance (+16%), education (+8.45%) and accommodation and catering (+39.1% ). Exports increased by 8.6%, imports - by 11.2%, public administration consumption - by 2.5%, household consumption and gross fixed capital formation decreased by 8.9% and 8.6%, respectively. In the fourth quarter of 2022, in real terms, the payroll fund decreased by 10.9% compared to the same period in 2021. The National Bank emphasizes that after the last two decisions on easing monetary policy, interest rates on loans and new deposits in lei had different dynamics - rates on deposits decreased, and on loans slightly increased. Interest rates on loans and deposits in foreign currency decreased slightly. The weighted average rate on deposits in February 2023 was 11.1% (-1.94 percentage points compared to January), and on loans - 14.34% (+0.08 percentage points). The NBM notes that if we talk about risks and uncertainty, then the balance of risks of deviating the inflation forecast is of a disinflationary nature, and uncertainties remain pronounced. The main sources are the tense situation in the region, the statistical reflection of energy compensation, the decline in external demand and prices. Forecasts for the eurozone have stabilized both in terms of inflation and economic growth. Among the major uncertainties about global demand is China's ending of the zero-COVID policy and the achievement of the US debt ceiling. The next meeting of the Executive Committee of the NBM on the promotion of monetary policy will be held on May 11. As InfoMarket agency reported earlier, at its last meeting on monetary policy on February 7, the NBM reduced the base rate applied to the main short-term monetary policy operations by 3 percentage points - from 20% to 17% per annum. Prior to this, the NBM reduced the base rate applied to the main short-term monetary policy operations on December 5, 2022, reducing it by 1.5 percentage points - from 21.5% to 20% per annum. Prior to that, it had not decreased for 2 years, from November 6, 2020, when it was reduced from 2.75% to 2.65% per annum. Since then, until December 5, 2022, it has only increased, reaching a level of 21.5% in August 2022. // 20.03.2023 — InfoMarket
