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National Bank of Kyrgyzstan raises discount rate to 6.5 percent

The Board of the National Bank decided to raise the discount rate (key rate) to 6.5 percent. Website of the bank says.

The central bank notes that the effect of restrictive measures in connection with the spread of new strains of COVID-19 and the slower than expected process of vaccination of the population in the world continue to have a restraining effect on the growth of the global economy. The price environment in the world food markets and increased volatility in the global financial markets are key factors that affect the scale of recovery of the trading partner countries of the state and, as a result, its economic development.

There are trends of recovery in economic activity in Kyrgyzstan, while domestic demand remains weak. Real wages fell by 5.3 percent in January-February 2021. One of the factors behind the recovery in domestic consumption is the positive dynamics of the inflow of remittances to the country. In January-February 2021, the indicator increased by 6.4 percent.

«The trends observed since the beginning of the year in the monetary sector have continued. Short-term money market rates have a common direction with the dynamics of the key rate, demonstrating a narrowing gap between them, and continue to fluctuate within the interest rate collar established by the National Bank. The level of excess liquidity in the banking system decreased, which led to activation of money market participants in the short-term segment, in particular, in interbank repo transactions,» the statement says.

Revitalization of economic activity in the country, as well as continued volatility of prices in the global commodity markets, led to an increase in demand for foreign currency in the domestic foreign exchange market in certain periods. The National Bank participates in the foreign exchange market to smooth out sharp fluctuations in the exchange rate.

«Taking into account the prerequisites for development of the external environment and internal economic conditions, the National Bank decided to increase the size of the discount rate to 6.5 percent. In case of any risks, the National Bank does not exclude the possibility of making additional adjustments to the current monetary policy. The National Bank of the Kyrgyz Republic regularly evaluates external and internal factors influencing inflation and, depending on the economic situation, will take appropriate measures of monetary policy,» the National Bank of the Kyrgyz Republic concluded.

The next meeting of the Board of the National Bank on the size of the discount rate will be held on May 24, 2021.