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National Bank of Kyrgyzstan keeps discount rate at 4.25 percent

The Board of the National Bank decided to keep the discount rate (key rate) at 4.25 percent. The website of the National Bank of the Kyrgyz Republic says.

According to the bank, inflationary background remains restrained in Kyrgyzstan. As of June 14, inflation was at the level of 0.9 percent. Its formation was caused by a slight recovery in prices for fruit and vegetables due to seasonal factors. Economic growth continues. The main contribution to real GDP growth is provided by the industrial sector.

Aggregate domestic demand continues to be supported by the inflow of remittances into the country and a growth in real wages.

«Estimates of the development of the external environment, including price dynamics in the global food markets, remain within the framework of the National Bank’s expectations. Inflation forecasts have been preserved: by the end of 2019, it is expected to be not higher than 4 percent, and its average annual rate will be 1 percent in case of absence of internal and external shocks,» the message says.

Maintenance of the stimulating direction of monetary policy contributed to further expansion of lending to the economy.

There is an increase in the deposit base of commercial banks. The interbank credit market is characterized by preservation of the activity of participants. The gap between short-term money market rates and the key rate continues to shrink, the dynamics of which is mostly concentrated in the middle of the percentage corridor set by the National Bank.

«There is a tendency for some decrease in the level of excess liquidity in the banking system, but its level is still high. In this regard, the National Bank continues to conduct sterilization operations. The situation in the domestic foreign exchange market is relatively stable. Due to the excess demand for foreign currency over its supply, the National Bank sold foreign currency of $ 27 million in the domestic foreign exchange market at the end of May to prevent sharp exchange rate fluctuations,» the National Bank stressed.

The positive dynamics in aggregate demand and low inflation risks from foreign markets allowed to keep the discount rate.

In the medium term, inflation is expected to approach the level of 5-7 percent in the absence of shocks. In case of risks in the internal and external environment, the National Bank may consider the possibility of adjusting the current direction of the monetary policy.

The next meeting of the Board of the National Bank on the discount rate issue will be held on August 26, 2019.