Moldovan leu was unstable at start of pandemic, but then appreciated. Experts explain

The Moldovan leu oscillated between appreciation and depreciation for many times at the beginning of the COVID-19 pandemic, witnessing the widest oscillations in the past few years. It didn’t depreciate further because the National Bank of Moldova (NBM) intervened and the market was stabilized. Afterward, it even appreciated by 3.5% compared with the start of the year.

Economic expert Veaceslav Ioniță has told IPN that the Moldovan leu is stronger than the currencies that are critical for Moldova, such as the Hryvnia of Ukraine and the Lira of Turkey. “Most of the consumer goods and agricultural products that we consume come from these two countries. The Moldovan leu is by 13% stronger than the Ukrainian Hryvnia and Turkish Lira. This means that the goods imported from Turkey and Ukraine at present, only because of the currency exchange rate, are by 13% cheaper than the Moldovan goods,” explained the economist.

Veaceslav Ioniță said that on the one hand, the Moldovans stand to gain as the prices of the imported products are not high. On the other hand, the national producers suffer because the market is full of products made in Ukraine and Turkey.

The leu became stronger during the pandemic because the demand for foreign currency decreased. The citizens in the period sold not much currency and the sales of currency now were the lowest in the past ten years. The citizens didn’t buy currency because, as a rule, they purchase apartments and cars with currency. The sales of apartments and cars during the pandemic decreased by about 40%. The demand for currency from business entities decreased because the import of goods declined by about US$ 400 million. The business entities need currency namely for import.

The expert noted the supply of currency was great. The IMF transferred the US$ 234 million to the National Bank and the Bank in the crisis period didn’t need to intervene much in the currency market. The demand for currency was low and the IMF funds went to accounts. Currently, the foreign exchange reserves of the NBM reached the historical high of US$ 3.2 billion.

Veaceslav Ioniță also said that since March, the remittances sent by official channels have increased. “In our country, the citizens receive by US$1.2 billion a year officially, but sell US$ 2.1 billion. The question is, where does US$ 900 million appear from? This money comes through unofficial channels. In March and partially in May, the Moldovans practically didn’t travel and could not bring money home unofficially. As a result, some of the persons hand to send money home officially. That’s why remittances actually decreased, while the official remittance increased,” he stated.

Economist Alexandru Fala, programs director at the Independent Think Tank “Expert Grup”, stated for IPN that the Moldovan leu has developed stably and even appreciated. Particular depreciation could be seen, but the market became stable in time and serious fluctuations are not expected.

“We had a sudden decline in revenues during a very short period of time and, evidently, imports decreased owing to those actions that blocked the economic activities globally. The two phenomena occurred concomitantly,” stated Alexandru Fala.

The fluctuation on the market was overcome as a result of the NBM’s interventions. “I think the situation will persist for a period. The situation on the currency market is very calm,” said the expert, noting the decline in remittances wasn’t so great to negatively influence the Moldovan leu’s position.

Alexandru Fala believes the leu will be relatively stable and could slightly appreciate if Moldova benefits from currency inflows, such as the EU’s financial assistance and the IMF’s loans. This will contribute to a stronger position of the leu. If the state borrows money at internal level and increases consumption based on imports, the leu will depreciate. These two factors will compensate each other. That’s why the market will be stable in the short term, probably with particular fluctuations that will be controllable.

Sabina Rebeja, IPN

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