Moldovan currency to keep slight, unclear oscillation

Chisinau, 4 November /MOLDPRES/ - Economic commentary by MOLDPRES State News Agency.

Moldova’s national currency continues to narrowly oscillate between 19.6 and 20.0 lei per one dollar on the currency market, amidst unfriendly economic conditions, both internal and external. Its exchange rate development is unclear and goes back and forth. Nevertheless, the Moldovan leu is toughing it out, the question is: how long will it resist?

Difficult times are expected to come. Remittances registered a record 47-per-cent fall in last August, worse than it was back in the 2009 economic crisis. The Expert Grup Independent Analytical Centre ascertains that this fall hurt consumption, investments and budget reverences. Though the decline rate has slowed down, reaching 35.6 per cent in September, it still exceeds the severity of the financial turmoil in 2009.

Such a phenomenon also causes imbalance between the demand and supply on the domestic currency market. The money supply from private people is no longer able to cover the entire currency demand of economic agents. By late 2015, we could expect an increase in the demand, and respectively, a bigger pressure on the currency.

Exports have been shrinking for 15 months already. The decline worsened in the last months. The Economic Ministry lowered its forecasts on the growth of exports by 10 per cent, which could actually decrease to 17 per cent, as expected by experts who elaborated the 2015 state budget.

“The lack of reliability triggered by the latest financial scams in three already liquidated banks (Savings Bank, Social Bank and Unibank commercial bank), hurt the entire banking sector. The seriously toughened monetary policy aggravates the situation even more. Moreover, the reduced consumption and economic crisis helps accumulate toxic assets within the system,” Expert Grup experts say.

The lack of a financial agreement with the International Monetary Fund (IMF) and the EU’s and World Bank’s decision to deprive Moldova of their financial support, have serious consequences well. In addition to that, the current uncertain governmental and political situation makes these consequences even worse. There is no certainty that Moldova will succeed to sign a programme with the IMF in the next weeks, and even so, the IMF management board would start negotiations on its approval not until early 2016, in the best case-scenario.

Given these conditions, the exchange rate of the national currency could continue to fall. “A strong decrease in the national currency against the other main reference currencies may endanger Moldova’s economy. Currency depreciation could hinder the reimbursement of euro and dollar loans, which could damage the quality of the bank loans portfolio, increase pressure on consumption prices and reduce consumers’ purchasing power,” experts of the National Institute of Economic Research (INCE) say.

Though pressure on the exchange rate is expected to grow by late 2015, both authorities and experts are cautious about making forecasts on the price action. Thus, the Economics Ministry revised downwards its forecasts on economic growth, exports, imports and agricultural productions, nevertheless, maintaining the forecast national currency exchange rate at 20.5 lei per one dollar.

An expert of the Viitorul Institute for Development and Social Initiatives (IDIS), Sergiu Gaibu, is more pessimistic and is expecting a new-record depreciation of the Moldovan currency against its main reference currencies. ”Most experts, including the ones of the IDIS Viitorul, believe the dollar’s exchange rate will probably keep its average value of the last month of 2015, and stand between 22 and 23 lei, if Moldova reaches an agreement with the IMF,” Gaibu said.

“The national currency exchange rate will stand at 19-20 lei per one dollar and will shrink by 35-40 per cent against the average value of 2014,” INCE experts noted.

Though a 35-40-per-cent fall is quite significant, Moldova succeeded to avoid a 64-per-cent and 89 per-cent fall in its currency exchange rate against the American dollar, as it happened in Russia and Ukraine respectively.

According to experts, the Moldovan leu will never return to its exchange rate of 12 or 13 lei per one dollar, from a few years ago. Moreover, the Economic Ministry has forecast a slight depreciation of the national currency in the next two years, and namely, a 20.96-lei-exchange rate per one dollar in late 2016, and a 21.57-exchange-rate per one dollar in late 2017.

(Reporter V. Bercu, Editor F. Galaico)