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Moldova holds rate, cuts reserve requirement 3rd time

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      Moldova’s central bank left its benchmark interest rates steady – unchanged since November last year – but lowered the reserve requirement for the third time in less than two months, saying this was aimed at mitigating and counteracting the negative effects of the COVID-19 pandemic on the country’s economy and strengthening its position in supporting a recovery.
     The National Bank of Moldova (NBM) left its base rate at 2.65 percent and the interest rate on overnight loans and deposits at 5.15 percent and 0.15 percent, respectively.
     Last year the central bank cut its key rate five times and by a total of 285 basis points from March through November. 
     But at its regular meeting in early March this year the bank’s executive committee cut the reserve requirement on bank’s domestic currency and non-convertible deposits by 200 basis points to 30 percent to help boost inflation – which hit 0.2 percent in January – and relaunch economic activity by maintaining adequate liquidity, lower the cost of funds for banks and ensure lending activity continues to rise.
      The easing was also aimed at mitigating the risks associated with a negative fiscal momentum during what the bank said was “intensifying political uncertainty.”
      At an extraordinary committee meeting on April 5, the reserve requirement on leu deposits was then cut by another 200 basis points to 28 percent as liquidity, after initially rising, declined to 3.4 billion in early April leu from 7.1 billion in mid-March, mainly due to tax payments.
     NBM said the cut would help avoid any crowding for funds out as demand from the finance ministry was rising.
      At its regular meeting today, the executive committee then lowered the reserve requirement for the third time since March 5 by another 200 basis points to 26.0 percent. The requirement for convertible currency deposits remains at 30 percent. 
     In the last two months Moldova’s inflation rate has begun to pick up and rose to 1.5 percent in March but remains far below the central bank’s target of 5.0 percent, plus/minus 1.5 percentage points.
    The bank’s latest inflation report will be published on May 7.
     In the February report, NBM lowered its forecast for inflation to 1.8 percent from 2.5 percent but expected inflation to return to the target corridor in the first quarter of 2022, helped by a recovery of aggregate demand, which, however, will still remain negative throughout the forecast period.
     The economy of the landlocked, Eastern European country that borders Romania and Ukraine shrank an annual 3.3 percent in the fourth quarter of last year, up from a fall of 9.7 percent in the third quarter and a 14 percent fall in the second quarter.


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