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National Bank of Kyrgyzstan lowers discount rate to 9 percent

The Board of the National Bank of Kyrgyzstan decided to lower the discount rate (key rate) by 200 basis points — to 9 percent. Website of the bank says.

It is noted that inflation in Kyrgyzstan continues to decline. In May, the growth rate of consumer prices in annual terms amounted to 4.4 percent (in December 2023 — 7.3 percent). The downward price dynamics are the result of the monetary policy of the National Bank implemented since 2022, aimed at limiting the growth of inflation and gradual reduction of the inflationary expectations of economic entities.

In the structure of inflation, the rate of growth of the cost of food products continues to steadily decline, which is also facilitated by a gradual decrease in world prices in food markets.

The National Bank of the Kyrgyz Republic also emphasized that economic activity in the country continues to show strong growth: in January — April 2024, the growth rate of real GDP was 7.4 percent. The main contribution to economic growth was provided by the construction and service sectors: a significant expansion of investment activity in fixed assets led to growth in the construction sector; in the field of services, as before, growth is observed in retail and wholesale trade. Domestic consumption continues to expand against the background of an increase in real incomes of the population and a net influx of remittances from individuals into the republic.

The situation in the interbank money market remains stable.

Short-term interest rates of the money market demonstrate a decrease following the change in the key rate of the National Bank. The banking system retains a high level of excess liquidity in the national currency, creating prerequisites for further expansion of lending to the real sector of the economy. The flexibility of the exchange rate is preserved in the domestic foreign exchange market. The National Bank within the framework of the floating exchange rate regime participates in currency trading in order to smooth out sharp fluctuations of the exchange rate.

«In the external economic environment, the dynamics of the main factors influencing the economy of Kyrgyzstan are ambiguous, but in general the degree of their impact is balanced. Tight monetary policy conditions of the world’s leading countries are helping to slow down global inflation. Global food markets have stabilized and prices for basic food commodities continue to decline. At the same time, the oil and gold markets remain volatile due to the persistence of geopolitical tensions in certain regions of the world,» the National Bank of the Kyrgyz Republic said in the statement.

The financial regulator believes that the steady slowdown in annual inflation in the country, coupled with the expected formation of its value by the end of this year within the medium-term target of 5-7 percent, creates space for easing monetary policy.

Under these conditions, the National Bank decided to lower the discount rate to 9 percent.

«The monetary policy of the National Bank is aimed at maintaining price stability in the republic and creating conditions for ensuring macroeconomic stability. In this regard, the National Bank of the Kyrgyz Republic continues to assess the emerging external and internal factors of inflation and, taking into account the still remaining risks in the external environment, will adhere to a prudent approach to conducting of monetary policy. If any risks arise, the National Bank does not exclude the possibility of making additional adjustments to the ongoing monetary policy,» the bank concluded.

The next scheduled meeting of the Board of the National Bank of the Kyrgyz Republic on the issue of the size of the discount rate will take place on July 29.