The National Bank of Moldova (BNM) raised its key interest rate by 200 bps to 10.5% at a monetary policy meeting on Tuesday (Feb.15). This was the fifth consecutive hike as the central bank aims to tame the rise in consumer prices and bring inflation down its targeted range of 5 +/- 1.5%.
“Raising the base rate … will help stop the surge of inflation imported by Moldova from abroad, quickly stabilize the situation in the economy and return inflation to the target,” BNM Governor Octavian Armasu told journalists.
The central bank’s head said that expensive energy imports — gas and oil products — were fueling inflation, which may jump to 18.8% this year, but will slow to 7.1% in 2023.
Consumer prices went up 16.6% on the year in January, from 13.9% in the previous month. It was the highest annual inflation rate since May 2008, pushed up by food prices (21.1% vs 17.5% vs in December), non-food goods (13.4% vs 12.1%) and services (14.8% vs 11.6%). On a monthly basis, consumer prices rose 2.8%, following a 1.7% increase in December.
The BNM also raised the overnight deposit rate by 200bps to 8.5%, its highest level since 2016, while overnight credits were increased by 200bps to 12.5%.
The central bank’s Inflation Report indicates policymakers expect headline inflation rates of over 20% in the second half of 2022 while the core inflation is seen exceeding 15%
The forecast is based on pro-inflationary factors, such as imported inflation, rising international food prices, energy and oil resources, positive domestic demand, a possible increase in electricity tariffs during the first and second quarters of 2022, and excise duty adjustment, along with the low annual base effect, BNM said.
Among the factors with a negative impact that will influence inflation in the downward phase (second half of the forecast period) are: aggregate demand steadily decreasing until the end of the forecast horizon, the downward trend in projected external prices for oil and gas, the improvement of the situation on the regional and global energy market expected in the next year, the slight decline in the annual rate of international food prices in the first half of the next year, the high annual base effect.
The central bank stressed that the current medium-term forecast has been prepared based on the information available and, in the event of additional factors or risks materializing, its trajectory will be revised accordingly.
The next meeting of the NBM Executive Board on monetary policy will take place on March 15, according to the approved schedule.