The average annual inflation rate will be 13.3% this year and 4.8% next year, after it peaked at 28.6% in 2022, governor of the National Bank of Moldova (BNM) Octavian Armasu announced on August 14, unveiling the quarterly Inflation Report.

Moldova’s monetary authority took a dovish stance this year as inflation was plummeting, dragged down by demand-side factors. It cut the policy rate twice in May and June by 4 percentage points (pp) each, bringing it to 6%.

Armasu recalled that inflation was 10.8% in July after it remained above 30% y/y for the entire second half of last year. All of the components of inflation are declining, Armasu added.

“Inflation no longer poses a risk to investment and consumption. Inflationary conditions are favourable for economic growth. The monetary conditions that the central bank has created will contribute to the growth of the economy,” Armasu said.

Moldova’s economy contracted by 5% in 2022 and was still in the negative area (-2.4% y/y) in Q1.

The World Bank has improved marginally its forecast for Moldova’s economic growth this year to 1.8%, from 1.6% projected in January.

The country remains among the worst hit by the war in Ukraine.

The World Bank forecast is, however, far more optimistic than that of the European Bank for Reconstruction and Development (EBRD), which estimated that the economy of Moldova will register a 1.3% decrease this year, before growth returns in 2024.

The Ministry of Economic Development and Digitalisation estimates a 2.5% increase in GDP this year, the National Institute of Economic Research (INCE) anticipates that the economy will grow by 3.5%, and the Expert Group claims that the economy of Moldova it will recover in 2023 and register an increase of 4.7%, according to MoldStreet.

Inflation will reach the target corridor of 5% +/-1.5pp set by the National Bank in October this year.

The National Bank assumes that the average price of oil this year will be $78.5 per barrel, and next year $74.7, while the price of natural gas will be $636.4 per 1,000 cubic metres this year and $607.9 next year. GDP growth in the Eurozone is assumed to be 0.5% this year and 0.9% next year, while inflation in the euro area will be 5.4% and 2.4% respectively.