Moldova's central bank has once again increased its key interest rate in response to escalating inflation driven by a burgeoning energy crisis. This marks the second consecutive monetary policy meeting where such a decision has been made.
On Wednesday, the Executive Board of the National Bank of Moldova unanimously decided to raise the base rate by 90 basis points, bringing it up to 6.50 percent. This decision followed a substantial 200 basis point increase during an emergency meeting in January spurred by inflation reaching 7 percent in December. The inflationary pressures have been exacerbated by a severe energy crisis instigated when Russia's Gazprom halted gas supplies to the separatist region of Transnistria on December 31. This cutoff occurred after Ukraine declined to renew an agreement facilitating the transit of Russian natural gas through its territory to Transnistria.
Transnistria had become crucial for Moldova's power supply, largely due to its access to complimentary gas from Russia, fulfilling much of the nation's electricity requirements.
The central bank's latest rate hike is in response to a significant energy crisis relief package exceeding EUR 300 million, negotiated between the European Union and the Moldovan government on Tuesday. The aid aims to alleviate the impact of adjustments in electricity and natural gas tariffs on consumer spending, as noted by the bank.
Additionally, the bank highlighted the necessity of this rate increase to address secondary effects emerging from changes in regulated tariffs anticipated in December 2024 and January 2025, which could further fuel inflation. The goal is to anchor inflation expectations and steer inflation towards a 5.0 percent target, allowing for a tolerance of ±1.5 percentage points, within a reasonable period.
Concerns over uncertainties in global economic developments and trade dynamics under the current international circumstances were also influential in the rate hike decision.
In parallel, the central bank has adjusted its schedule for releasing Inflation Reports this year to include a medium-term inflation forecast that factors in the EU assistance designed to mitigate the impact of rising regulated tariffs. The forthcoming Inflation Report is therefore slated for release on February 25.
The subsequent rate-setting meeting is scheduled for March 20.
