Spread of coronavirus induces additional disinflation pressure

At the current stage, the spread of the coronavirus induces additional disinflation pressure on consumer prices. This way, the information about the annual rate of inflation in January and February and the events that took shape after the previous round of forecasts reveal the risk of a trajectory inferior to that published in the Inflation Report No. 1, the National Bank has said when answering a number of questions concerning the situation in the national banking sector during the state of emergency declared in Moldova, IPN reports.

According to the Bank, the major risks for the start of 2020 and for the forecast horizon until the start of next year are related to disinflation determined primarily by the atypical weather conditions, the elimination of provisions that existed earlier in the fiscal policy, the lower GDP deviation for this year following the impact on the national economy of the measures taken by the authorities to contain the COVID-19 pandemic and a more disinflationist external environment.

Owing to the epidemiological situation, the global demand was revised down and this resulted in an inferior forecast of international prices of food products, petroleum and gas for the whole forecast horizon.

The National Bank has the legal power to maintain the stability of prices, but does not have powers to stimulate directly the business sector. The Bank noted that by promoting an adequate monetary policy, it manages to protect the population’s purchasing power and to ensure optimal conditions for the economic recovery and growth within its possibilities.

At monetary level, the National Bank diminished the interest rates on the main monetary policy instruments amid the uncertainty and slowdown in economic growth. This way, the money will become more accessible to the economy and the interest rates on loans for financing are to decrease in the conditions imposed by the state of emergency. Large volumes of liquidity were issued in the banking sector so that the population can benefit from flexibility when paying interest on loans and the business entities can supplement the necessary amounts of cash for operational activity.

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