Price rise mixed with leu's rise – a new disease of Moldova's economy

The price rise mixed up with the leu's appreciation is the key headache of the Moldovan economy in the first half of 2008, finds an analysis in the publication „Realitatea economica” no. 5, recently launched by independent analysts from Expert-Grup think-tank, Info-Prim Neo reports. Setting the inflation control as its key strategic target, the National Bank (BNM) drasticly increased the compulsory reserves and the basic rate for REPO operations. In June, the prices dropped by 1.1%. Yet, apparently, this plunge is not related to the BNM's moves, but rather to season factors, which triggered drops in food prices by 3.5%, believes the economist Valeriu Prohnitchi. The hypothesis is confirmed by the fact that the non-food products and services grew more expensive during this period, he says. Prohnitchi says the anti-inflation tools used by the BNM have an adverse effect on producers, which need short-term loans. All the banks have raised the interest rates, as some even ceased offering certain types of credits. In this situation, it is the small and medium companies which suffer most, as they don't have credit histories and work in risky areas, as agriculture is. On the other hand, the counter-inflation policy of the Central Bank has positive effects, too. It makes commercial banks to review their business strategies to identify necessary resources for lending. The banks with Moldovan capital seek for foreign partners to attract cheap liquidities and to develop loan portfolios, says Expert Grup's director. The analyst points out that the BNM impelling a normative capital of 100 million for commercial banks is an additional stimulus, which will trigger major changes on the banking services market the coming 1-2 years. They will manifest in bank swallows and mergers perhaps more spectacular than seen till now.