Rising inflation calls for restrictive monetary policy measures, NBM governor

Inflation is rising and this requires restrictive monetary policy measures, which will create conditions for a return to equilibrium and potential economic growth, and also ensure the stability of the national currency. This was stated by Octavian Armașu, governor of the National Bank of Moldova, during the presentation of the second Inflation Report for this year.

The wave of increases in global energy and food prices has had a major impact on prices in Moldova. Inflation in Moldova is higher than in other countries for several reasons, including the high share of food in the consumer basket, the small and open economy, but also the economic imbalances caused by the failure to timely adjust utility rates in the past, says Armașu.

“First of all, all economies are facing rising inflation as a result of the pandemic crisis and the war in Ukraine. Inflation is rising even in advanced economies. Fewer and fewer people believe that inflation will soon be over. Central banks are being forced to tighten monetary policy. Along with the other banks, the National Bank of Moldova, by restricting monetary policy, aims to mitigate the effects of inflationary shocks and ensure financial stability”, Armașu told a news conference.

He said that in the first quarter of this year the annual inflation rate continued the upward trajectory started in 2021 at a higher than expected pace. It increased from 13.9% in December 2021 to 22.2% in March 2022. As a result, in the first quarter, similar to the previous period, it was above the 5% range ± 1.5 percentage points. At the same time, the average annual inflation rate in the fourth quarter of 2021 was 19.1%, being 7.4 percentage points higher than in the previous quarter.

In the next period, the upward trajectory of the annual consumer price index (CPI) will continue amid rising food and other commodity prices in the regional market. A major impact on the CPI is due to the full reflection of tariff adjustments by the NBS in the first half of 2022. Increased rates on gas, heat and electricity, further increase in gas import prices, and possible increases in other tariffs will lead to price pressures on several sub-components of the CPI.

In the second quarter of 2022, the inflation rate will continue to be above the upper limit of the range and will return to the range only in the last quarter of the forecast. The annual rate of core inflation will have an upward trend until the first quarter of 2023, then declining towards the end of the forecast period. The annual rate of regulated prices will increase in the first two quarters of the forecast and from the fourth quarter onwards it will decrease significantly towards the end of the forecast period, according to the Report.

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