The impact of inflation on financial activity: the experience of small and medium-sized enterprises

Abstract

It is not easy for a business to deal with the post-pandemic consequences, the economic recession, and the world energy crisis. Globally, the inflation rate is increasing. More than 60 central banks have raised the base rate in 2022. Despite promoting anti-inflationary policies, the expected results have not been achieved. The price increase affected the economic activity of SMEs, whose finances are more vulnerable than those of large enterprises. Initially, inflation positively influences the volume of loans because the borrower will return less real money according to their purchasing power. In addition, it increases the demand for loans. In such situations, commercial banks increase the interest rate on loans, and the Central (National) Bank uses different instruments of anti-inflationary policy. For example, it increases the reserve requirement ratio. The realization of these decisions leads to a reduction in the volume of new credits granted. The purpose of the study is to estimate how inflation influences the volume of loans in total in Moldova. The result showed that the total impact of inflation on the credits granted is negative. In the end, the debtor is the loser. The research object is relevant not only for the Republic of Moldova, which recorded the highest inflation rate among the countries of the European continent but also for other countries of the world.