The NBM reduced the base rate applied to the main short-term monetary policy operations by another 4 percentage points - from 14% to 10% per annum.
This decision was made by the Executive Committee of the NBM at a meeting on 11 May. In addition, also by 4 p.p. were reduced interest rates on loans and overnight deposits - from 16% to 12% and from 12% to 8% 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, the latest macroeconomic data largely confirms the validity of the previous forecasts of the NBM. The timely adoption of restrictive monetary policy measures in 2022 led to a change in inflation dynamics. Thus, after the maximum value reached in October 2022 (34.6%), the inflation process continued to slow down, and in April 2023 annual inflation dropped to 18.1%. By components, prices for food products increased by 16.4% over the year, for non-food products - by 10.6%, for services provided to the population - by 33.2%. The National Bank notes that the increase in tariffs with their domino effect, the war in Ukraine, the drought last summer and the increase in excises at the beginning of the year keep inflation well above the target level. However, the disinflationary demand that started in mid-2022 and the appreciation of the leu since the beginning of this year continue to mitigate the pressure of the mentioned factors. If we talk about the external environment, then at the beginning of 2023 the global economy grew faster than expected. The energy crisis in Europe did not get worse this winter, as expected, as natural gas consumption plummeted due to high temperatures and austerity measures, and gas storage capacity was filled to its highest level in 12 years. Oil prices were less volatile than last year, mainly due to signs of a crisis in some US and Swiss banks and stronger-than-expected demand growth in China. However, OPEC+'s decision in early April to cut supplies by another 1.66 million barrels per day pushed oil prices above $85 per barrel. Prices for other commodities fell further due to weak demand and satisfactory supply, as well as last year's strong base. The war in Ukraine and the earthquake in Turkey continue to affect the regional economy. As pro-inflationary pressures eased, some emerging market economies began to ease monetary policy, while advanced economies raised interest rates by smaller amounts. According to the NBM, economic activity in Moldova fell sharply in the second half of 2022, while the annual growth rate of real GDP was -10.6% in the fourth quarter of 2022. In 2022, Moldova's GDP decreased by 5.9%, сompared to 2021. The contraction in economic activity was determined by a decrease in domestic demand (due to a decrease in real incomes of the population and tightening credit conditions), increased uncertainty in the region and a smaller harvest (due to adverse weather conditions). On the demand side, government consumption, exports and imports increased, while household investment and consumption declined. In terms of supply, agriculture, industry, trade, transport and the social sector declined the most. If we talk about monetary conditions, the excess liquidity in the banking sector amounted to 11.7 billion lei, an increase of 6.4 billion lei in the first quarter of 2023 compared to the previous quarter. The annual increase in monetary aggregates increased in the first quarter of 2023 compared to the previous quarter, mainly due to deposits in lei. In the first quarter of 2023, the weighted average interest rates on new loans issued in the national currency continued to grow, and on term deposits, they decreased compared to the previous quarter. The NBM's current outlook is based on a better external economic environment, but below potential and with many risks and uncertainties. The National Bank points out that the tightening of monetary policy in advanced economies and still weak demand in China overshadow the outlook for the global economy. International prices are falling due to risk dispersion and lower consumption compared to high supply in some segments. The outlook for the eurozone economy has improved: consumer prices will slow in the near term, at least due to weak domestic demand, lower electricity tariffs, the effect of last year's high base, and slower food price growth due to expectations of a positive agricultural year. At the same time, the NBM expects at the end of Q3 2023 a reduction in tariffs for natural gas and related public utilities, which, together with its secondary effect, will have a disinflationary effect. Annual inflation will decline until the end of the forecast horizon and return to range in 4Q 2023. Aggregate demand will be negative until early next year due to deteriorating household finance, weak external demand and less restrictive monetary conditions, but will be reinforced by a slight positive fiscal incentive. The NBM emphasizes that the forecast risks and uncertainties are high, but the balance of risks remains disinflationary. From the external environment come such sources as trade with Turkey, the war in Ukraine, the moment of easing monetary policy in the region and the world, quotes for energy resources and other raw materials. Major domestic uncertainties include energy supply and pricing, tariff adjustments, refugee flows, weather patterns, and future crop yields. The new NBM Inflation Report for May 2023 will contain detailed information and will be published on the official website of the NBM on 15 May. The next meeting of the Executive Committee of the NBM on the promotion of monetary policy will take place on June 20. As InfoMarket agency reported earlier, at its last monetary policy meeting on March 20, the NBM reduced the base rate applied to the main short-term monetary policy operations by 3 percentage points - from 17% to 14% per annum. Prior to that, 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. It is noteworthy that before that, the NBM reduced the base rate applied to the main short-term monetary policy operations only on December 5, 2022, reducing it by 1.5 p.p. - 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.// 11.05.2023 — InfoMarket.
