The headline inflation in Moldova (chart) eased to 4.3% y/y in February from 4.5% y/y in January, remaining in the 4-5% lower half of the 5%+/-1pp target band for the third consecutive month.

Moldova’s central bank, the National Bank of Moldova (BNM), cut the policy interest rate by 50 basis points (bp) to 4.25% on February 6, pointing out that inflation remained within the target band for the third consecutive month in December.

Food prices increased by 3.5% y/y in February, non-food prices by 5.6% and the services fees (which include the energy prices) by 3.5% y/y.

Prices increased by 0.7% m/m in the month, though, after the 0.8% m/m advance in January.

The containment of the regulated prices significantly contributed to the steep disinflation seen in the second half of last year: the housing prices (including energy) contracted by 3.75% y/y as of February.

A further natural gas price reduction of 20% for residential and small businesses was approved in February, which will contribute to the price stability through the year.

The central bank targets 5% inflation with a +/-1.5 percentage points band, and it said on February 6 that it expects actual inflation will remain within the target band over the coming eight-quarter forecast period. 

The monetary authority points to the aggregate demand as a disinflationary force throughout the forecast period due to weak external demand, reduced consumption financing and tight monetary conditions.

Average annual inflation will be around 4.7% this year and 4.5% next year respectively.

The base effects imply that the annual inflation will remain subdued until the end of April but will become more problematic afterwards.