Interview with the Governor of the National Bank, Octavian Armașu


What should the market expect from the NBM’s monetary policy by the end of 2022?

The National Bank will use all monetary policy instruments and will take all necessary measures to bring inflation to 5 percent per year in the medium term. In the economic context of the Republic of Moldova, this level creates optimal conditions for economic growth and development and the well-being of citizens. It is our main goal and all NBM instruments are used exactly to reach this level of 5 percent, taking into account how the situation in the market will evolve. We will also adjust the monetary policy instruments accordingly to subsequent economic developments.

At the moment, the restrictive monetary policy of the NBM creates conditions that encourage saving behavior to the detriment of immediate consumption behavior. It is clear that high inflation is slowing economic growth and eroding citizens’ purchasing power. Under a restrictive monetary policy, the government needs an expansionary fiscal policy with a strong social component to support the most vulnerable categories of population.


How can the NBM, in accordance with the law, control inflation in the face of a large volume of significantly more expensive imports? What shortcomings on the part of the NBM leadership condition a high inflation in the country? If the President of the Republic of Moldova is right and the NBM cannot control inflation, wouldn’t it be time to change the NBM Law and set other, more realistic tasks for the country’s main bank? For example, should we organize an efficient system for financing the development of the industry in the country?

I will remind you that we have inflationary shocks from the outside that do not originate from the monetary policy of the NBM. They are caused by certain events outside the Republic of Moldova. They started with the problems created by the pandemic crisis and are now amplified by the war in Ukraine. These inflationary shocks cannot be stopped by monetary policy, but this does not mean that the NBM’s main objective of price stability has lost its relevance. The mandate of the NBM is applied to bring inflation back to the target. That is, we need to stop the spread of the effects of this wave of price hikes as soon as possible and prevent rampant increases or, as we professionals call them, the effects of the second round and bring inflation back to the target as soon as possible. Most central banks currently apply their mandate to ensure price stability in this way.

Monetary policy and monetary policy strategies are very complex and involve very complicated tools, econometric modeling, debates within the NBM and only later is a decision reached. In order for them to make certain decisions, you must also have some knowledge and experience in the field. All central banks have exactly the same instruments as the NBM and in the fight against inflation the exact same classical instruments apply.


How has the NBM’s monetary policy influenced which some call drastic and uncompromising, influenced the lending? Is there a risk that some of those who lent to banks to switch to microfinance companies?

The monetary policy of the central bank can sometimes be drastic and painful, but we must understand that it is necessary to make this imported inflation a temporary phenomenon. We will maintain a restrictive monetary policy for as long as is necessary to bring inflation back to the 5% target level. When we see inflationary pressures easing and the trajectory of the economy leading to equilibrium, the NBM will begin to relax monetary policy. Now we need to pay this price so that later we don’t pay a much higher one. We want to avoid the scenario in which inflation becomes persistent and then it will be much more expensive to bring inflation back into the corridor.

In terms of microfinance companies, there is a difference in business approach between banks and those companies. The two regulators – NBM and CNPF – have agreed to implement responsible lending rules, which will align the rules of the game for both sectors. For the banking sector, the new regulation enters into force on July 1, 2022. We will see what decision the CNPF will take, I hope it will not be too late.


What did you like about the IMF agreement and what would you not have signed? How would you explain the importance of this agreement to ordinary citizens?

I think it’s a very good deal. For the first time with many objectives, which go far beyond the financial sector. It is a program focused on good governance in state institutions, which I think is very important at this stage. The implementation is different. It is important that the authorities implement these objectives. I am glad that despite the difficulties and crises we are going through, all the state authorities have expressed their desire and intention not to postpone the reforms. They have expressed their commitment to continue pursuing the reform agenda and I think that is a very good and plausible thing to do.


Has the economy adapted to current market conditions? How comfortable are these conditions for economic agents, so that they can develop business, increase the export potential of the country as a result of the tough monetary policy?

The economy is in the process of adjusting and the adjustment will be completed when inflation in the corridor reaches 5% + -1.5 percentage points. Then we can say that all the internal deviations in the economy have adjusted and the economy is in a new balance. Until then, we are in transition, in the process of adjusting, which, yes, is painful, but it is necessary to avoid persistent inflation, and, respectively, a worse situation in the future.


The NBM raised the base rate to 18.5 to stimulate savings. However, banks apply an average interest rate of 11% in the case of an inflation rate of 30%. In what currency should people keep their savings?

The NBM raised the base rate to 18.5 in order for the deposit rate to continue to rise. Also with this stake are our decisions to increase the required reserves. In this way we want to stimulate savings, to make banks make deposits in lei more attractive by raising rates. We had discussions on this topic with the representatives of the banks. The banking sector is currently resilient and citizens’ savings are secure. Statistics show that depositors still prefer to hold deposits in the national currency, which reflects the public’s confidence in it.

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