National Bank governor says increased inflation pace is temporary

The Moldovan National Bank (BNM) forecasts an annual inflation rate of 10.8% for 2010. According to BNM Governor Dorin Dragutanu, the increase in the pace of inflation is temporary and is determined by non-monetary factors, like the rise in government-regulated prices, fuel and food prices. “These factors will have a temporary effect on the consumer price index and we expect it to return to the established target of 5 ± 1% in the second half of 2011”, said Dragutanu. The BNM, says Dragutanu, does not aim to achieve the inflation target of 5 ± 1% by the end of each month or quarter and cannot take harsh measures to match the inflation at any cost to the target by the end of the year. This would gravely affect the economy. „Any monetary policy decision produces effects on the economy with a lag of three or four quarters. This is why the BNM decisions are based on medium term macroeconomic predictions rather than on statistics released on some date. We also should take into account the fact that the BNM forecast included in the Monetary Policy Report is based on a relatively stable exchange rate of the leu against the dollar and a slight appreciation of the leu in the medium term”, said the governor. “Of course, when compared with a target of 5 ± 1% established by the BNM, an annual inflation rate of 10.8% appears to be rather high. But if we look back, we can see that Moldova has had a traditional rate of inflation higher than 10 per cent over a longer period of time. This is not a tragedy, especially since economic growth is rather slow now and this is the greatest disinflation-causing factor. However the BNM remains firm that a low rate of inflation in the medium term creates optimal conditions for the real sector, for business planning”, added Dorin Dragutanu. Concerning economic growth, the BNM governors thinks Moldova's outlook is now better than at the beginning of 2010, as confirmed by the IMF mission. So, the BNM expects the GDP to grow 2.5% in 2010 and 3.6% in 2011. Among the risks of the BNM's current macroeconomic forecast Dragutanu mentioned the rise in energy prices, in the prices of raw materials and food on the international markets and the rise in indirect taxes and government-regulated prices, as well as financial problems for some EU countries, which could result in lower remittances and investments and delays in the foreign assistance promised to Moldova.