Moldova's c-bank cuts key rate to 4.25%

Interest rates on overnight loans and deposits also decreased by 0.5 percentage points - to 6.25% and 2.25% per annum, respectively, the central bank, BNM, said in a press release on Tuesday.

The rate cut is aimed at further stimulating aggregate demand, currently disinflationary, including by encouraging consumption, balancing the national economy, and anchoring inflationary expectations.

This is the seventh cut in the BNM's policy rate since August 2023 when it stood at 21.5% - the highest level since 2001.

Moldova's annual inflation eased to 4.2% in December from 5.5% a month earlier, slightly lower than expected. The deviation from the forecast was mainly driven by the unexpected drop in the electricity tariff in November and the statistical reflection of compensations for high energy prices granted to the population during the cold months of the year.

Moldova's economy expanded by an annual 2.6% in the third quarter of 2023, mainly due to due to a bountiful harvest that led to higher exports and lower imports of agri-food products.

The BNM expects average annual inflation to come in at around 4.7% this year and 4.5% next year.

In regards to the inflation outlook, external forecasted risks and uncertainties remain high, including tensions in the Middle East, the blockade of Red Sea transport routes, the conflict in Ukraine, temporary supply shocks, food prices, economic decline in the euro area, timing of monetary policy relaxation, and potential geopolitical shifts after the 2024 elections.

Internally, uncertainties involve tariff adjustments, changes in CPI basket weights, reflecting energy resource compensations in statistics, refugee influx, weather conditions, and future harvests, the BNM said.

The BNM's executive board will hold its next monetary policy meeting on March 21.

(1 Moldovan leu=0.05 euro)