Moldovan currency likely to depreciate by about 30 percent against dollar in 2015, experts say

Chisinau, 14 March /MOLDPRES/ - The Moldovan currency (Leu) might depreciate by about 30 per cent in 2015, in conditions when the quota of exports and remittances from abroad are decreasing and some transactions in the banking system worsened the situation on the market, the Expert-Grup Independent Analytical Centre has reported. The management of the National Bank of Moldova (BNM) said that „there is no premise for the Moldovan leu to depreciate”, similar to the one happened in the mid of past February when the exchange rate went up to over 20 lei for a dollar.

The author of the study „Diagnosis of depreciation of Moldovan leu”, Alexandru Fala said that „most likely, the adjusting of economy to the new foreign currency inflow will last 1-2 quarters, and the nominal depreciation of leu against the dollar might be of 30 per cent in 2015 compared to 2014”.

The decrease of exports and incomes from transfers, as well as the anaemic evolution of direct foreign investments will determine the diminishing of currency offer and will lead to cheapening of leu against other currencies, Fala said. He also explains the cheapening of the national currency by „the behaviour of people”, who got into a true market player.

The exports to the Commonwealth of Independent State decreased by 32.9 per cent in 2014 compared to 2013, and remittances sent from Russia diminished on the basis of the rouble’s depreciation against the dollar by 40 per cent in 2014. At the same time „in order to protect oneself” from the dropdown of the purchasing power of economies, which might be provoked by the leu’s depreciation, people started to sell Moldovan lei and purchase foreign currencies, which, subsequently, were placed in the bank deposits or „salted away”.

Under the study, the weakening of leu, which started in the last quarter of 2014 and continues, shows an economy that entered a compression phase, whereas the weakening of the banking sector caused by the explosion of doubtful transactions over the past years will influence the decline of the social and economic indicators of Moldova in 2015.

In this situation, it is possible that Moldova to record an economic fall of 1-2 per cent in 2015 and, most likely, the tempo of inflation increase will exceed the maximum threshold of 6.5 percent imposed by BNM and is likely get over 7 per cent, Alexandru Fala said.

In order to improve the economic situation and stabilise the Moldovan currency’s rate, Expert-Grup recommends the decision-makers to negotiate and sign immediately a new agreement with the International Monetary Fund and BNM to gradually relax the monetary policy, in order not to threaten more the economic growth prospects, which are already pessimistic.

On the other hand, BNM First Deputy Governor Marin Molosag said that there was no premise for the leu’s depreciation similar to the one in the mid-February 2015, when the exchange rate got over 20 lei per dollar. "At this stage, the relaxed monetary policy would be a counterproductive one as it might create more risks, which are related to a bigger inflation and deeper depreciation," Molosag said.

On 17 February, BNM decided to increase the main rate from 8.5 to 13.5 per cent. The rise up was described by the bank’s management as „a significant tightening of the monetary policy”.

(Reporter V. Berco, Editor L. Alcaza)