2022 will be characterized by the stability of the Moldovan leu (MDL) exchange rate with a slight downward trend - IDIS Viitorul.
Veaceslav Ionita, the economic expert of the Institute for Development and Social Initiatives, expressed this opinion, noting that, most likely, the National Bank of Moldova (NBM) will carry out prudent interventions that will allow the MDL to move along the balance line. According to the expert, consumer loans, which rose sharply in 2021, reached the foreign exchange market and created a foreign exchange deficit, will decrease in 2022. The energy shock will be lower compared to 2021, as will the foreign exchange deficit. “I believe that the MDL should be stable in 2022 with a slight depreciation. In 2021, the maintenance of the MDL was forced due to interventions totaling $305 million. I hope that inflation will be lower in 2022, which will allow the MDL to depreciate slightly,” the expert said. He stated that in Moldova the exchange rate forms the demand for foreign currency, the supply of foreign currency and the intervention of the National Bank in the foreign exchange market. In 2021, as in other years, the NBM actively intervened in the foreign exchange market in order to ensure the appreciation or depreciation of the MDL depending on market trends, and at the same time to prevent a sharp depreciation of the MDL, which would cause an even higher inflation than registered, which reached its maximum level for the last 18 years. According to the expert, in the short term the main instrument for curbing inflation in Moldova is the exchange rate. High inflation means shocking prices for the population, because the price of imported goods, which dominate Moldovan consumption, depends on the exchange rate. When the MDL depreciates, prices rise, and when it appreciates, prices fall. The economic analyst noted that in Moldova the main player in the foreign exchange market is the population, which always has a positive net sales volume. On the other hand, there are also economic agents who need currency. The population sells currency, and business entities buy it. At the same time, the population, on the one hand, sells currency, and on the other hand, it buys it. The difference between what the population sells and what it buys is the net sale of foreign currency entering the foreign exchange market. In 2021, the population of Moldova sold $4 billion, up $600 million compared to 2020. The high volume of foreign exchange sales in 2021 was partly due to the 2020 savings driven by low consumption hit by the pandemic crisis, primarily due to due to the fact that citizens did not go on vacation abroad, and part of this money went to the foreign exchange market. Massive sales of foreign currency were one of the reasons for the strong growth in imports, which last year exceeded 7 billion. The expert also noted that last year the population sold currencies worth $4 billion and bought only $1.6 billion, while almost $2.4 billion billion remained on the foreign exchange market. At the same time, in 2021, the demand for foreign currency from economic agents significantly exceeded the supply. If for 21 years there was an excess of foreign currency on the market, with the exception of the crisis years of 2009, 2014 and 2020, then in 2021 there was an excess demand for foreign currency due to increased consumption and a sharp increase in energy prices in the last quarter of 2021. Veaceslav Ionita specified that there are several factors explaining the appearance of a currency deficit. Firstly, last year the population borrowed a lot in the financial sector, the volume of loans increased by almost 8 billion lei, half of which were consumer loans, which formed a demand not covered by production. Thus, consumer loans mainly formed an increase in imports and demand for foreign currency in the foreign exchange market. “All the money from loans fled to the foreign exchange market and turned into a foreign exchange deficit. The NBM was forced to collect these lei (MDL) and sacrifice foreign exchange reserves. This is a phenomenon that already worries the NBM and for this reason it intervened in the money market. The NBM is trying to prevent this abundant consumption, which creates disruptions in the financial system and the foreign exchange market,” said Veaceslav Ionita. The economist also noted that in 2021, the growth in energy prices had the greatest impact on the foreign exchange market, after the government allocated 1.6 billion lei, which automatically entered the foreign exchange market, since it was necessary to buy foreign currency for gas imports. Similarly, the population was forced to pay a higher price for energy resources, money that was still convertible into currency. The economic analyst also said that this gap between supply and demand created a foreign exchange deficit in the foreign exchange market, which reached $566 million in 2021. The last time a similar situation was in 2014, when the “billion theft” took place in banks, and when the gap amounted to $569 million. In 2021, the NBM sold $305 million, which is a record amount over the past 5 years, to maintain the exchange rate. If the NBM had not intervened, there would have been a significant depreciation of the MDL and a much higher inflation rate. According to Veaceslav Ionita, since independence, the NBM has acquired about $2 billion in the foreign exchange market, offering national currency (MDL) in return for the needs of citizens and the economy. This value was reached in 2013. After the banking crisis of 2014, the NBM was forced to sell $1 billion. Later, it restored the amount to $2 billion 350 million. Last year, $300 million was sold. However, the foreign exchange reserves of the institution were practically not affected thanks to the help of the European Union and the IMF. In 2021, foreign exchange reserves reached a record high of $4 billion 073 million. After interventions last year against the backdrop of moderation in the exchange rate, the reserves of the NBM decreased to $3 billion 773 million, and by the end of the year recovered to $3.9 billion. The economist also specified that in 2021 the MDL appreciated against the 5 base currencies and depreciated against the other 5 base currencies. At the same time, it appreciated against the EUR and depreciated against the USD. At the same time, as Veaceslav Ionita says, the exchange rate fluctuation during the year is an unpleasant phenomenon for farmers wich reoccurs every year. Almost every spring, the MDL tends to depreciate, and in autumn it rises in price. In the spring, when farmers make purchases to start farming, the MDL depreciates, and they are forced to buy fertilizer, fuel and other means of production at a price 3% higher. This situation annually brings them financial losses of hundreds of millions of MDL. In autumn, the phenomenon is usually reversed. The MDL is strengthening and they are forced to sell their goods 3% cheaper just because of the exchange rate. “The NBM should be very attentive to this aspect, because its monetary policy creates the feeling that it is playing in favor of someone and definitely against someone else,” concluded Veaceslav Ionita. For 2022, the expert forecasts the stabilization of supply and demand in the foreign exchange market. Thus, the possible foreign exchange deficit will be incomparably lower than in 2021, which will reduce the need for NBM interventions. The expert believes that the exchange rate of the MDL against the USD and the EUR will continue to remain stable with a slight downward trend. // 31.01.2022 – InfoMarket
