Monetary policy normalisation and its impact on Moldova
In response to the international financial crisis in 2007/2008, central banks in advanced economies reacted heavily and cut their policy rates to unprecedented low levels. This ultra accommodative policy had its intended impact, but now it poses severe risks of asset bubbles. Thus, leading central banks have started to normalise their policy.
This policy normalisation is negatively affecting several emerging countries such as Argentina and Turkey, but so far, no impact was observed on Moldova for two main reasons. First, Moldova has a low level of external short-term debt; there is practically no “hot money” in the country. Second, macroeconomic management has been very prudent in the last two years or so. Despite the lack of impact so far, some caution is advisable. In particular, we favour a continuation of the built up of foreign exchange reserves and of a prudent fiscal policy.
