Within the meeting of the 27 April 2017, the Executive Board of the National Bank of Moldova adopted the following decision by unanimous vote:

1. to maintain the base rate applied on main short-term monetary policy operations at the current level of 9.0 percent annually;

2. to maintain the interest rates:
- on overnight loans at the current level of 12.0 percent annually;
- on overnight deposits at the current level of 6.0 percent annually;

3. to increase the required reserves ratio from financial means attracted in MDL and non-convertible currency by 3.0 percentage points, reaching the level of 40.0 percent of the base as from beginning of the maintenance period of required reserves in MDL: 08 May 2017 - 07 June 2017.

4. to maintain the required reserves ratio from financial means attracted in freely convertible currency at the level of 14.0 percent of the base.

Executive Board of the NBM approved the Inflation Report no.2, 2017, which will be presented at a press conference on 04 May 2017.

The analysis of the most recent statistic data shows the positioning of the annual inflation rateAnnual inflation rate represents the increase of consumer prices during a month this year compared with the same month last year. It is calculated as a ratio (expressed in percentage terms) between the price index during a month this year and price index during the same month last year, calculated on the same basis, minus 100. Statistical surveys on consumer prices are carried out by the National Bureau of Statistics (NBS). NBM sets its inflation target at the level of 5.0 percent annually, calculated based on the consumer price index (inflation rate for the last twelve months – each month of this year compared with the same month of last year), with a possible deviation of ±1.5 percentage points. (Source: Medium-term monetary policy strategy of the NBM. ^[1] within limit of the range of ± 1.5 percentage points from the 5.0 percent target.

The annual inflation rate was 5.1 percent in March 2017, by 0.4 percentage points higher compared to the previous month.

The annual rate of core inflationСore inflation is calculated by the NBS, excluding prices that are outside the influence of monetary policy promoted by the NBM, such as food and beverages, fuel, products and services with regulated prices. Data prepared and published from January 2012 are calculated by the NBS according to the modification of Annex no.2 of “Methodology for the calculation of core inflation index”, approved by joint order of the National Bank of Moldova and National Bureau of Statistics N8-07-01203/6 of 19 January 2012 (the modification refers to the inclusion of prices for remote communication services and medicines in regulated prices).^[2] was 4.6 percent in March 2017, increasing by 0.3 percentage points compared to the previous month.

The dynamic of macroeconomic indicators in the first two months of 2017 shows premises for further economic recovery in the first quarter of 2017. Thus, the exports increased by 23.9 percent compared to the same period of 2016, imports by 21.3 percent and industrial output - by 1.9 percent. At the same time, the volume of transported goods increased by 13.4 percent.

In the first quarter of 2017, lending and saving processes recorded different developments. The volume of new loans granted during the reporting period increased by 3.5 percent, while the volume of new attracted deposits decreased by 19.2 percent compared to the same period of last year. The total balance of credits decreased by 9.2 percent at the end of March 2017 compared to the same period of last year. At the same time, the total balance of deposits increased by 4.4 percent compared to the end of the first quarter of 2016.

In March 2017, the average rate of new loans granted in national currency decreased by 0.71 percentage compared to the level recorded in December 2016, accounting for 11.03 percent. The average rate of new deposits attracted in MDL decreased by 0.67 percentage points, reaching the level of 6.12 percent annually. The monetary policy conduct continues to be affected by the risks and uncertainties associated with the development of internal and external environment. The external inflationary risks arise from the increase in international food prices, along with the uncertainty of the oil and natural gas prices. Potential internal risks and uncertainties to inflation arise from the persistence of liquidity excess in banking sector, the impact of changes in excise duties related to fiscal policy, fiscal deficit and harvest in 2017, respectively. However, the postponement of adjustments in tariffs for regulated services and the reinclusion of liquefied gas price into the Methodology of formation and application of prices for oil products, adopted in the first quarter of 2016, generate disinflationary pressures.

According to the current round of forecasting, the annual inflation rate will register an upward trend until the fourth quarter of 2017, after which it will decrease until the end of the forecasting horizon. Starting with the second quarter of 2017, inflation rate will be above the range of variation during four consecutive quarters. Thereafter, this will fall within the limits of the range of variation of ± 1.5 percentage points from the 5.0 percent target until the end of the forecasting horizon.  The annual average inflation rate will record the level of 6.8 percent in 2018 and 5.1 percent in 2018, respectively.

The dynamics of output gap will record positive values during the next four quarters and will be negative in other quarters. The placement of the economic activity below its potential level, on medium-term, will cause disinflationary pressures, while the negative output gap during four quarters of the forecasting horizon will lead to disinflationary pressures from the aggregate demand.

Against this background, within the meeting held on 27 April 2017, the members of the Executive Board of the NBM decided by unanimous vote to maintain the policy rate at the current level of 9.0 percent annually.

In order to sterilize excess liquidity and improve the transmission mechanism of monetary policy decisions, the Executive Committee took the decision to increase the required reserves ratio attracted in MDL and non-convertible currency by 3.0 percentage points up to 40.0 percent of the value of the base for the maintenance period of required reserves in MDL: 08 May 2017 - 07 June 2017. At the same time, the required reserves ratio from financial means attracted in freely convertible currency was maintained at the current level 14.0 percent of the base.

It should be mentioned that the monetary policy measures adopted by the NBM during 2016 are to be transposed into the national economy through various transmission channels, including by influencing interest rates on loans and deposits in national currency, thus exerting further effects on inflation development.

At the same time, the monetary policy conduct aims to ensure adequate real monetary conditions for supporting the lending and savings, along with further adaptation of domestic economic environment to the uncertainties of the external environment.

Inflation Report no.2, 2017 includes a more detailed assessment of the macroeconomic situation, inflation forecast in the medium-term and potential risks and challenges that will be faced by the monetary policy in the next periods. The report will be published on 04 May 2017 as scheduled.

NBM will continue to manage the liquidity excess through sterilization operations, according to the announced schedule.

NBM will further monitor and anticipate the domestic and international economic environment developments, so that by the flexibility of operational framework specific for the inflation targeting strategy to ensure price stability in the medium term.

The next meeting of the Executive Board of the NBM on monetary policy will take place on 25 May 2017, according to the announced schedule.

[1] Annual inflation rate represents the increase of consumer prices during a month this year compared with the same month last year. It is calculated as a ratio (expressed in percentage terms) between the price index during a month this year and price index during the same month last year, calculated on the same basis, minus 100. Statistical surveys on consumer prices are carried out by the National Bureau of Statistics (NBS). NBM sets its inflation target at the level of 5.0 percent annually, calculated based on the consumer price index (inflation rate for the last twelve months – each month of this year compared with the same month of last year), with a possible deviation of ±1.5 percentage points. (Source: Medium-term monetary policy strategy of the NBM.

[2] Core inflation is calculated by the NBS, excluding prices that are outside the influence of monetary policy promoted by the NBM, such as food and beverages, fuel, products and services with regulated prices. Data prepared and published from January 2012 are calculated by the NBS according to the modification of Annex no.2 of “Methodology for the calculation of core inflation index”, approved by joint order of the National Bank of Moldova and National Bureau of Statistics N8-07-01203/6 of 19 January 2012 (the modification refers to the inclusion of prices for remote communication services and medicines in regulated prices).

Evolution of the NBM interest rates