Moldova’s foreign exchange reserves currently equal 4.8 months worth of imports, and this is a “comfortable” level, says Octavian Armașu, president of the National Bank of Moldova. According to him, this exceeds the “optimal” level, which is three months worth of imports.
“We are in a fairly comfortable zone. We expect funding from our external partners. I’m talking about the program with the International Monetary Fund, the programs supported by the World Bank and the EU partners, and you know that the Government has already signed bilateral agreements with some partner countries in the European Union”, Armașu told reporters.
As for the NBM interventions on the domestic foreign exchange market, Octavian Armașu says that they are dictated by market conditions. The NBM intervenes when there is a major imbalance between supply and demand in the foreign exchange market, and the balancing is done to prevent further shocks that would come from a sudden change in the exchange rate. Thus, the National Bank allows the exchange rate to adjust slowly, gradually, without shocks.
“Last autumn, the gas crisis began, when gas had to be bought for the heating season at unexpectedly high prices. The coverage of the foreign exchange demand then fell well below 30%. So, of course, in such conditions the NBM had to intervene. And it intervened, making available foreign currency from its reserves so that economic operators could buy energy resources and provide gas for the heating season. If the NBM had not intervened at that time, we would have had a massive depreciation of the leu. And maybe even if it was temporary, it would have been a very big shock that everyone, the whole economy, would have felt, and which, in turn, would have created many other shocks, including for the banking sector and the non-financial one. But above all, this would have led to an increase in gas prices”, explained the official.
To prevent this from happening, the NBM intervened and the market has gradually adjusted to the new conditions. The NBM interventions have led to the withdrawal of about seven billion lei from the market, reducing the money supply. This is a good thing when inflation is high, says Armașu.
“After the market calms down, the situation is reversed and we start buying foreign currency back into our reserves. That’s what happened in January. A new shock, the military conflict in Ukraine, broke out again in February. This conflict has created great nervousness in the market, in businesses, in individuals. We saw a certain withdrawal of deposits, we saw that certain businesses and individuals started to convert the deposits they had in Moldovan lei into foreign currency, which created additional demand for foreign exchange on the market”, noted Armașu.
So, following the same logic, the NBM intervened and made the necessary currency available to the market. The situation has now changed, prompting the NBM to buy currency from the market and restore the foreign exchange reserves.
