Selected Issues Papers

This chapter reviews the evolution of Moldova’s inflation targeting (IT) regime since its introduction in 2013, focusing on the National Bank of Moldova’s (NBM) operational framework in a challenging macro-financial environment. Inflation has been volatile and largely driven by exogenous factors, including food, fuel, regulated energy prices, and high exchange rate pass-through, complicating the conduct of IT in a small, open, and partially dollarized economy. Empirical evidence shows that monetary policy initially reacted mainly to exchange rate movements, targeting inflation only indirectly. Since 2020, policy has shifted toward a more conventional IT framework, with systematic responses to the inflation gap, reduced foreign exchange intervention, and strengthening monetary transmission. The chapter also assesses the costs of high reserve requirements and discusses options for their gradual normalization.