The governor of the National Bank of Moldova Octavian Armașu said that inflation in the Republic of Moldova had a higher amplitude and the inflation process started earlier, but could be tempered faster. As regards the economic cycle, Moldova is yet in recession. That’s why the next challenge is no longer inflation, but the overcoming of recession.
“We entered these overlapping crises with a rather small and open market economy, with many weaknesses, especially in the energy sector. As the economy is vulnerable and open to shocks, these shocks quickly penetrated it. The war then broke out. We probably have the largest exposure in the trade with Ukraine, Belarus and Russia against the other countries of the region. This thing affected us. Ukraine is in our immediate neighborhood. We have a lot of supply chains with Ukraine. Some of these broke and caused additional shocks, while others resisted. All these shocks came simultaneously. They intertwined and turned into a very powerful inflation wave. Respectively, they spread earlier than in Europe and I think we will manage to overcome them faster. As I said, the big challenge remains – to overcome the recession,” Octavian Armașu stated in the podcast “Give sense to money” that was launched by the NBM.
He noted that the inflation shock was great and peaked at over 34% in October 2023. As the NBM managed to temper the processes of the second round, inflation started to decrease and now follows a firm downward trend. The forecasts say inflation will return to the corridor in the fourth quarter of the year and the monetary policy will be oriented so as to keep inflation in this corridor.
“The recession is deeper than we expected and this is a big challenge. Respectively, the speed at which inflation decreases is slightly faster than we anticipated in the previous forecast we made at the beginning of the year. This makes us respond with the relaxation of the monetary policy earlier so as to support economic recovery. This swift decline of inflation, which is faster than we expected, is due to the deep recession because the demand is very weak and we need to stimulate it. So, we do what we can with the assistance of monetary policy instruments. When inflation rises and declines, the monetary policy can do nothing but direct the processes to the right direction,” explained Octavian Armașu.
According to him, it is very important for the monetary policy to be supported by appropriate fiscal policies. “I speak about the countercyclical fiscal policy as the procyclical fiscal policy only worsens the problems. That’s why we permanently plead for a permanent dialog with the government so as to harmonize these two policies and to achieve the objectives that refer not only to inflation, but also to economic activity and the interest of citizens,” stated the governor.
