The annual inflation in February 2024 was within the target range for the fifth consecutive month, standing at 4.3%, by 0.3 percentage points lower than in January. According to the National Bank of Moldova, the decrease in food prices on the international market, the high base and the low demand contributed to the reduction of inflation. Concomitantly, the stimulative monetary policy measures so far, the positive seasonal effect, the adjustment of fiscal policy and some adverse sector shocks alleviated the decline in inflation, IPN reports.
The central bank noted that the latest macroeconomic information largely confirms the validity of the latest forecast. Actual inflation was 0.5 percentage points lower than projected. The deviation was influenced by the temporary delay in the adjustment of charges for medical services for this July.
“Economic activity in the domestic environment increased by only 0.2% in the fourth quarter of 2023. The modest rise was largely driven by the rich harvest that led to increased exports of agri-food products. Household consumption continued to increase, while public administration consumption continued to decline for two and three consecutive quarters respectively. Investment continued to decline for the third consecutive quarter. These developments, from modest to negative, was largely caused by the insignificant growth in the population’s real incomes of the considerable uncertainty in the region,” said the NBM
Transfers to individuals decreased by 15.9% in December 2023 and by 4.6% in January 2024. The salary fund increased in real terms by 10.9 percent in the fourth quarter of 2023. As a result, domestic demand remains weak. As for the supply, communications, social services, accommodation and catering services advanced, while the industry, construction sector, trade and transport contracted.
Interest rates on new loans and deposits in lei also decreased in February following the cumulative monetary policy stimulation. The weighted average interest rate on deposits in lei was 3.81%, while that on loans – 9.63%, decreasing by 0.37 and 0.34 percentage points, respectively, compared to January 2024. Thus, the decrease in rates led to a 45.3% increase in the volume of new loans in lei compared to the same period last year. Interest rates on foreign currency loans and deposits continued to fall.
Regarding the update of the forecast, the NBM said that the balance of risks of the inflation forecast is disinflationary and uncertainties remain pronounced. Among the main sources are the tense situation in the region and the Middle East, adjustment of charges, reflection in statistics of compensatory payments for energy resources granted to the population in the cold period of the year. In advanced economies, interest rates are expected to be lowered. Oil prices could be higher than anticipated, while those for natural gas and food products – lower. The uncertain situation in the region makes the population and economic agents to have pessimistic expectations, which could limit domestic consumption and investments.
“The National Bank of Moldova closely follows the inflationary process, assessing the associated risks and uncertainties, so as to maintain inflation within the range of ±1.5 percentage points from the 5% target. The NBM is ready to adjust, if necessary, the monetary policy instruments in order to maintain price stability,” the institution noted.
