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Moldova - Octavian Armasu: The National Bank cannot react aggressively

Moldova (, - The National Bank of Moldova presented the first updated inflation forecast this year, according to which the average annual inflation rate in 2022 will be 18.8%, and in 2023 - 7.1%. NBM President Octavian Armasu at a press conference with journalists from the Economic Press Club (CPE), he noted that in the next three quarters inflation will grow at a high rate and will exceed 20% in the second and third quarters. But starting from autumn, the inflation rate will slow down. Inflation can return within the corridor set by the National Bank only by the end of 2023, reports.

The President of the NBM does not rule out deviations from the baseline scenario, when inflation may be at the level of 27%. This is due to many unknowns: when and by how much electricity and gas tariffs will rise, what will be the government's response to the new economic situation, how the budget will be replenished, what tax policies will be applied, etc.

Commenting on inflationary processes, Octavian Armasu drew attention to the fact that already in January, annual inflation (compared to January 2021) amounted to 16.56%.

According to the NBM, the indicators of core inflation largely depend on imports, so it is expected to increase in the near future. Food price growth has almost reached its peak and food prices are expected to rise more moderately over the next 2-3 months.

The head of the National Bank noted that the rise in prices is a global phenomenon. “In order to prevent the situation from getting out of control, the NBM has developed monetary policy measures that have mitigated inflationary risks. It was necessary to take restrictive measures when, in the second half of last year, there was uncertainty associated with the energy crisis, with rising prices for natural gas and oil on the international market, which led to a slowdown in global economic activity, and this was reflected in domestic demand. The NBM has all the necessary leverage to restrain inflation growth and normalize the situation in the real sector of the economy with the help of monetary methods. We have enough currency and liquidity reserves for this to stop further inflation growth and return it to its usual corridor.”

He also said that the NBM has taken the necessary measures to return inflation to the target target - 5% plus or minus 1.5%. This level is considered optimal for the economic development of the country in the medium term. If the National Bank reacts more aggressively, then a direct impact on the real sector may do more harm than good due to high economic costs.

The President of the NBM expressed hope that the introduction of a new regulation on mandatory reserves for commercial banks from February 16 will divert some money from the market, which will curb price growth.

Speaking about the yield on state securities, the banker suggested that it could grow due to an increase in the base rate of the NBM. “It will depend on the demand for resources that the Ministry of Finance attracts through the placement of securities. If demand grows, then profitability will have to increase.”

Answering the journalists' question about the expediency of a stable lei exchange rate at such high inflation, he explained that the bank does not maintain its rate, since this is not a strategic goal for the bank. Octavian Armasu recalled that the regulator intervenes in the situation on the market to prevent sharp exchange rate fluctuations, and is interested in the exchange rate being determined solely by the supply and demand of the currency.

Moldova - Octavian Armasu: The National Bank cannot react aggressively