Moldova cuts rate 4th time in 2020 to boost inflation
Moldova’s central bank cut its main interest rate for the fourth time this year to stimulate demand and economic activity as well as boost inflation so it achieves its primary objective.
The National Bank of Moldova (NBM) cut its base rate by another 25 basis points to 2.75 percent and has now cut it by 275 points this year following two cuts in March and one in August.
Since December 2019, when the central bank began easing after raising the rate twice last year, the rate has been cut by a total of 475 points.
In addition to cutting its base rate, NBM also lowered its rate on overnight loans to 5.25 percent and the rate on overnight deposits to 0.25 percent. The bank also raised the required reserve ratio on funds in freely convertible currencies by 150 basis points to 30.0 percent for the period of Oct. 16 to Nov. 15, and for Nov. 16 to Dec. 15.
The central bank said the increase in the reserve ratio was to strengthen the transmission mechanism of its monetary and foreign exchange policy.
“This decision is stimulative and aimed at achieving the fundamental objective of the National Bank, as well as supporting the lending process to support aggregate domestic demand and thus the national economy,” NBM said after a unanimous decision by its executive committee.
The rate cut takes place amid disinflationary pressures, both domestically and internationally, including an appreciation of the leu, lower regulated prices on electricity, international energy and food.
Inflation in Moldova was 4.2 percent in July, largely unchanged from 4.3 percent in June and 4.1 percent in May, NBM said it was possible inflation would fall below the lower limit of its target range of 5.0 percent, plus/minus 1.5 percentage points this year and remain around that level until the end of 2021.
Moldova’s leu has been rising steadily since early April and was trading at 16.6 to the U.S. dollar today, up 4.2 percent this year.