Experts affirm increasing imports, remittances to depreciate Moldovan leu

Chisinau, 13 July /MOLDPRES/ – The Moldovan leu (MDL) has experienced a contradictory evolution during 2019 – from relatively steep depreciation, to almost equally significant appreciations. In first half of 2019, the value of MDL depreciated against both U.S. dollar (USD) and European single currency (EUR) by almost 6 per cent. The statement was made by economist Ion Tornea.

According to expert, following rythm of depreciation, this is one of the most significant depreciations of MDL, after similar depreciations in 2014 – 2015, caused by bank fraud, but also after the one in 2009, determined by the regional economic and financial crisis.

According to the economist, the main causes of the depreciation of MDL against USD and EUR are fundamental in nature and are related to developments in domestic demand for and supply of foreign currency, amplified by political crisis after parliamentary elections. From a historical point of view, the political instability taken separately has not caused major and lasting exchange rate fluctuations, as the share of speculative transactions on foreign exchange market is quite small. But, it has created some nervousness and negative expectations among buyers and sellers of currency, which was reflected in exchange rate developments.

On supply side, the economist argues that the main factors influencing the course are foreign currency inflows from exports and money transfers from migrant workers abroad. The Moldovan exports grew by about 08 per cent in the first 04 months of 2019, while imports – almost doubled (16 per cent). Also, the monthly growth rate of exports varied around 08 per cent, while the growth rate of imports increased considerably by April. Thus, the trade deficit of Moldova has risen from about $138 mln in January to nearly $300 mln in April.

The second major element of currency offer – money transfers from abroad via banks decreased by almost 07 per cent in the first 5 months of 2019, or by over $34 mln. As in case of trade balance, the largest involution occurred at the end of the period under review, namely in May, when transfers shrank by over 14 per cent. Under these circumstances, the net foreign exchange supply of individuals increased in May by just $3.3 mln (+1.6 per cent), while the net demand of foreign currency by economic agents – by almost $83 mln (over 49 per cent).

Also in May, the demand coverage for foreign currency by economic agents through the net foreign currency supply of individuals was less than 85 per cent compared to 124 per cent in April 2019. Similarly, in January and February 2019, the supply of currency by individuals was lower than the demand from economic agents, with coverage ranging almost 50 – 55 per cent.

From the beginning of July we witness a trend of appreciation of MDL (over 02 per cent against EUR and 01 per cent against USD). Ion Tornea argues it is mainly due to the fall in demand for currency, as well as to psychological factor determined by the end of the political crisis. However, current appreciation is largely due to seasonal factors.

Also, the course evolution will depend on fundamental factors. By the end of 2019, the forex market will most likely be further marked by decline in foreign currency transfers from individuals abroad, but also by faster growth of imports, which will put pressure on exchange rate of MDL against major foreign currencies, with a slight depreciation trend, said economist. According to him, this decrease will not be a steep but gradual one, as there are currently no objective reasons for a sudden depreciation of MDL – to the level of about MDL 18.50 – MDL 18.70 for $1 and MDL 20.80 – MDL 21.00 for €1.