Moldova’s central bank kept its base rate steady at 6.50 percent, saying the risk of low inflation in 2019 and 2020 remains intact due to more moderate global oil and food prices than forecast in the November inflation report.
The National Bank of Moldova (NBM), which has maintained its rate since December 2017, also said there is a risk inflation may be lower than expected in the next two quarters due to a high supply of some crops while the assumptions for the rest of the forecast horizon are unchanged.
Balancing the downside risks to inflation, NBM pointed to the exchange rate of the leu that is likely to generate inflationary pressures
Moldova’s inflation rate fell to 0.9 percent in November from 1.2 percent in October, the lowest inflation rate since December 2009.
In its November inflation report the central bank forecast inflation in the first two quarters would be below its target range of 5.0 percent, plus/minus 1.5 percentage points, but then rise to the upper end of its range by the end of next year. In early 2020 inflation would then decelerate.
It was NBM’s first monetary policy decision under the leadership of former Finance Minister Octavian Armasu who took over as governor on Nov. 30 for a 7-year term following the resignation of Sergiu Cioclea.
Cioclea became governor in 2016, replacing Dorin Dragutanu who resigned after a $1 billion embezzlement scandal that led to major street demonstrations, a plunge in the leu and soaring inflation, and aid from the European Union and the International Monetary Fund.
Under Cioclea, the central bank improved transparency in bank ownership and guided the sale of stakes in large lenders to foreign investors.
When he announced his resignation, Cioclea said this was for personal reasons and that he had fulfilled his mission.
After plunging in 2015, the leu turned around in May 2016 and appreciated steadily until August. Since then it has traded sideways against the euro and was quoted at 19.5 today, up 5 percent this year.
The return of President Trump speaking out against monetary policy in the United States appears to have been enough to prevent the Dollar making a further milestone high for 2018, at least for now.
President Trump has resumed his drive to prevent the Federal Reserve from raising interest rates further, by stating that it would be “foolish” just one week before the central bank meets to discuss on possibility of raise US interest rates as widely expected in December.
It is not that surprising that we have seen the return of rhetoric against Fed policy from Trump, but one of the major takeaways from his comments is the remarks that “you have to understand, we’re fighting some trade battles and we’re winning. But I need accommodation too.” This does discreetly imply that it is possible, that the Trump Administration are starting to recognize some of the detrimental impacts that the long-standing US-China trade tensions can have on the United States economy.
Emerging market currencies benefit from Trump remarks
The price action for the Dollar during Wednesday trade so far does suggest that the resumption of buying demand for the Greenback over recent sessions is cooling. This is a likely combination between both the comments made from Trump on Fed policy, and also optimism that the news China will cut car tariffs on US-made cars to 15% will help ease the long-standing trade tensions.
The softness in the Greenback will help provide relief to a number of different emerging market currencies, where improved momentum is noted across Asia and most of the EMEA. Whether the likes of the Chinese Yuan and its emerging market counterparts can push on from here does rely on the unpredictable element over whether the next round of trade news to filter through, will be looked upon positively by investors.
I do otherwise maintain the view that the Fed will move ahead with raising US interest rates during their meeting next week regardless of the comments made by President Trump, which will lead to speculation that the any near-term rebound in emerging market currencies is not set to last for long.
Indian Rupee unable to benefit from Dollar softness
If anyone would like to see how much buying sentiment for the Indian Rupee has been hurt by the news of former RBI Governor Urjit Patel stepping down from his position then you just need to look at the performance of the Indian currency today. A loss of 0.2% against the Dollar might not stand out in the grand scheme of things when it comes to market fluctuations, but this move is coming at a time where many other Asian emerging market currencies are attempting to strengthen against the Dollar.
Speculation over potential political interference into central bank policy is considered as a very serious concern for investors, and the return of this theme in India is representing encouragement for investors to stay clear away from the Rupee.
Keep a close eye on the Pound
The British Pound is attempting to stabilize near 1.25 at time of writing but the relentless nature of headlines that UK Prime Minister Theresa May is once again at threat to a leadership challenge does present a clear picture that risks for the Pound is still firmly pointing lower.
There are generally so many concerns around the broad political landscape with Brexit and also domestically at home, that it concludes with the vision that there is no light at the end of the tunnel for the British Pound.
Indications that the EU is willing to consider compromises on a Brexit deal would be what is needed to help the British Pound recover some ground, but that is unlikely to be the case.
Instead, the focus of investors will be on the negative aspects of a potential leadership challenge for Theresa May, combined with the increased threat the that United Kingdom is edging dangerously close to a no-deal or even worse, a disorderly Brexit scenario and this is why concerns continues to loom that the Pound is still primed for another leg lower.