The price situation in the Republic of Moldova is dramatic as the prices reached the highest level in the last 20 years and are forecast to rise for at least half a year more. Economist Veaceslav Ioniță said the National Bank of Moldova (NBM) has limited instruments to fight corruption and the effects these can produce are rather small, IPN reports.
The expert of the Institute for Development and Social Initiatives “Viitorul” noted that a low base rate encourages lending, while a high base rate discourages this. In 2020, the NBM decreased the base rate to 2.65%, which is the lowest level in the country’s history, as the people didn’t spend much money due to the pandemic, the crisis. The base rate was lowered in a move to stimulate consumption among the citizens and to reanimate the economy. In the second half of 2021, the central bank began to increase the base rate so as to combat the inflation effects that started to have an impact. The base rate during half a year was raised six times in an effort to temper the entrance of money into the economy, which fueled inflation.
The higher base rate helped to control inflation, but the loans grew more expensive for everyone, including for the Government that this year plans to borrow 14 billion lei, 4.6 billion lei of which from the domestic market. When the NBM increases the rate on loans, it does not apply differentiated instruments, but in practice the rise is differentiated.
The base rate on consumer loans in the third quarter of 2021 was at only 4.6%, which is the lowest level in the country’s history. After the base rate was increased, the interest rate on consumer loans grew considerably, to 9.2% in the fourth quarter of last year. As a result, the volume of new loans raised by the population for consumption decreased from 4.4 billion lei in the third quarter of last year to less than 4 billion lei in the fourth quarter. The rate on home loans grew insignificantly, from 8.1% to 8.4%.
The base rate in January 2022 was 8.1%, up from 5.5% in the third quarter of last year. Such a rise means additional costs of 120 million lei associated with the loans raised by the Government. If the NBM hadn’t increased the base rate, this money would have been saved by the Government, but the inflation rate would have been much higher and the Government would have spent the saved money on increasing the pensions and the salaries of public sector employers and on paying subsidies to socially deprived groups.
The exchange rate is also an instrument in the fight against higher prices. As Moldova is dependent on imports, the import prices are lower if the Moldovan leu is strong and are higher if it is weak. In 2020, the volume of sold currency was higher than the necessary volume. In 2021, the situation was the opposite. There was a shortage of currency on the market almost each month. Last November, the shortage was of US$273 million. If the central bank hadn’t intervened, the Moldovan leu would have depreciated significantly, stated the economist.
