Is it time for the central bank to lower its inflation target?
Automatically translated summary. The full text is available in Romanian.
A commentary by the Independent Think Tank “Expert-Grup” argues that the National Bank of Moldova should lower its inflation target to reflect new macroeconomic realities. The change would make monetary policy more effective, bring Moldova closer to EU norms and reduce the state budget burden linked to the “theft of the billion”.
The National Bank has targeted inflation of 5% (± 1.5 percentage points) since 2013. Excluding the non-monetary shocks of 2015-2016 and 2021-2022, inflation exceeded 5% in only about a third of months in 2013-2023. Economic growth potential has also eroded, owing to emigration, population ageing, weak investment appeal and lower remittances. Forecasts point to CPI below 5% and real GDP growth of 3-4%. An outdated target can send wrong signals and delay the central bank’s response to inflation.
The commentary recommends a gradual cut to 4% (± 1 percentage point) in 2025, 3.8% in 2026 and 3.5% in 2027, as Romania’s central bank did. This would also approach the 2% target of most EU central banks. A lower target could cut the cost of servicing the MDL 11.7 billion debt to the National Bank by about MDL 150-200 million annually, though this should not be the main motive.
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