Since the start of the year, the Moldovan leu has strengthened against the U.S. dollar by 7% and against the euro by 5%. The exporters and the people who live on remittances have been affected by the leu’s appreciation the most. According to the governor of the National Bank of Moldova (NBM) Octavian Armașu, the recession is the cause of this appreciation, IPN reports.

“So, the currency inflows in the Republic of Moldova are more or less constant and have been even supplemented by the financing reached by the Government. The demand is the most serious problem. So, being in recession, the demand for imports of different goods, either consumer goods or goods for investments, is very weak. Respectively, there is no demand for foreign currency, for paying for these imports. When the supply is more or less constant and the demand decreases significantly, there is an imbalance and this imbalance leads to the appreciation of the leu,” Octavian Armașu stated in the podcast “Give sense to money” that was launched by the NBM.

According to him, the NBM intervenes in the market to purchase this excess. “But the NBM cannot oppose the tendency that is supported by the economic situation, to say it so. We can only attenuate the volatility that can appear on the market as our market is small and is not “sufficiently deep” and volatility appears therefore. But we cannot oppose the tendency. We always allow it to adjust to the direction that is dictated by the market. This is what we do now. Re-launching the economy as soon as possible is the only solution to solve this problem: if the economy is re-launched, consumption is re-launched, imports are re-launched and the demand for foreign currencies will increase and the exchange rate will return to normality,” stated Octavian Armașu.

The governor said that any variation brings particular problems as variation brings volatility. These things are included in the prices. “So, the volatility of the exchange rate is a problem for the economy. The NBM’s reserves consist primarily of U.S. dollars and the U.S. dollar is the intervention currency, which is also the reference currency. Against the U.S. dollar, we have reduced volatility, while the exchange rate for the euro is formed depending on the exchange rate between the dollar and the euro on the European exchanges. Respectively, volatility on the European market cumulates with the ley’s volatility against the dollar and we now have greater volatility against the euro. This is the current construct,” stated Octavian Armașu.

“We follow things and at a certain moment, when the share of the euro increases enough, even if it is rather large, we will probably analyze the opportunity of switching over to the euro as to intervention currency. This will reduce the euro-leu volatility, but will increase the dollar’s volatility against the lei and we will then experience problems elsewhere. So, we follow the macroeconomic tendencies, the structure of trade and will take a decision depending on these.”