Central bank governor says exchange rate targeting would be suicidal

Targeting the exchange rate would be suicidal for a small, developing and completely open economy like Moldova, National Bank (BNM) Governor Dorin Dragutanu told a news conference today, quoted by Info-Prim Neo. According to Dorin Dragutanu, if the BNM shifted to exchange rate targeting instead of inflation targeting, the Bank would have to support artificially a certain exchange rate and revise it frequently, considering the exposure of the Moldovan economy to external risks. That would cause great imbalances in our economy. “For Moldova, targeting inflation is a more suitable mechanism as it creates conditions for economic stability”, said Dorin Dragutanu. In Moldova the exchange rate is floating and is determined based on the offer and demand principle. “When we see that the developments of the rate are not determined by economic factors, but rather by speculative actions or unfounded expectations, the BNM intervenes, but there isn't any standard procedure as to intervening when the leu depreciates. Our intention is to intervene as seldom as possible so as to allow the actors on the currency trading market to find the balance by themselves”, said Dorin Dragutanu. Commenting on the recent developments of the euro on the international markets and their impact on the Moldovan leu, the governor said the issue was not simple. “Let's see how the EU's and IMF's (€750b) bailout plan influences the euro, and then we will decide whether we need to make adjustments to the exchange rate or not. However, I think the depreciation of the euro against the dollar is a transitory phenomenon”, said Dragutanu.