National Bank of Moldova raises refinancing rate to 6.5% per annum

CHISINAU. Feb 5 (Interfax) - The National Bank of Moldova (NBM) raised the refinancing rate for the second time this year on Wednesday, to 6.5% from 5.6% per annum which had been in effect since January 13.

During an unscheduled meeting on January 13, the NBM had previously raised the rate by 2 percentage points from 3.6% to 5.6% per annum.

Also on Wednesday, the overnight lending rate was increased by 0.9 percentage points from 7.6% to 8.5% per annum, the overnight deposit rate was raised from 3.6% to 4.5% and the repo operations rate was increased from 5.85% to 6.75% per annum.

The NBM said that the latest rate hike was a necessary measure to mitigate the secondary inflationary effects caused by rising energy tariffs in December 2024 and January 2025. It aims to bring inflation back to the target level of 5%, within a fluctuation range of plus or minus 1.5 percentage points, within a reasonable timeframe.

The rate increase decision was made taking into account the financial aid package from the EU, the majority of which will be directed toward subsidizing energy tariffs for the population, it said.

Inflation began to rise in H2 2024, reaching 6.97% by the end of the year, up 1.54 percentage points compared to the previous month, and exceeding the NBM's target.

As external pro-inflationary factors, the National Bank pointed to the strengthening of the U.S. dollar. This "creates inflationary pressure in developing countries, especially those dependent on imports," it said. "The fading of disinflationary pressure and the emergence of inflationary pressure signal a shift in global monetary cycles, creating expectations that the period of rate cuts will end, and a cycle of hiking the rate may even begin," it said.

The next meeting of the NBM Executive Committee on monetary policy is scheduled for March 20, 2025.

It was earlier reported that, following the halt of Russian gas supplies to Transdniestria from which right-bank Moldova imported low-cost electricity, Chisinau was forced to rapidly increase imports of more expensive electricity from Romania, leading to a sharp rise in domestic tariffs. In response, the NBM significantly raised the key interest rate in an effort to minimize the inflationary impact of rising energy prices.

The NBM gradually reduced the rate from 4.75% to 3.6% per annum over 2024, but the downward trend ended in September 2024 amid concerns over an energy crisis.