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National Bank keeps discount rate at 4.75 percent

The Board of the National Bank decided to keep the discount rate (policy rate) at the level of 4.75 percent. The Chairman of the National Bank Tolkunbek Abdygulov told today at a press conference.

According to him, inflation in Kyrgyzstan remains low. As of August 17, its rate in annual terms was 1 percent. Inflation decline is caused by a fall in food prices. Estimates of the development of the situation in the country’s economy and in the external environment make it possible to expect that inflation in the medium-term period will not exceed the target range of 5-7 percent.

«Contribution to the development of the economy is ensured by the restoration of aggregate demand both due to an increase in the inflow of remittances (they increased by 10.2 percent in January-June 2018), and due to an increase in real wages (4.2 percent — in January-June 2018). The growth in the economies of the countries — trade partners of Kyrgyzstan in the medium term will help to keep the external demand for domestic exports,» said Tolkunbek Abdygulov.

In addition, excess liquidity remains in the banking system, which causes a slight decrease in activity in the interbank market of credit resources. This determines conducting of operations on seizing excess liquidity by the National Bank.

Indicators of financial intermediation are improving. There is an increase in the loan portfolio and expansion of the deposit base of commercial banks.

Market loan rates continue to decline. For the first half of 2018, the weighted average interest rate on loans fell by 0.8 percent — to 15.2 percent.

«There was an excess of demand for foreign currency over its supply in mid-August in the domestic foreign exchange market. The National Bank conducted currency interventions to smooth the sharp fluctuations in the exchange rate. The domestic foreign exchange market remains stable,» Tolkunbek Abdygulov summed up.

According to the National Bank forecasts, if current trends continue and in the absence of external shocks, inflation will enter the range of 5-7 percent in the medium term.

Taking into account the heterogeneity of risks on the part of the external sector connected with the prospects on the world commodity and raw materials markets, as well as the trends in the development of domestic conditions, the National Bank decided to keep the discount rate. The current direction of monetary policy in the forthcoming period will remain in the absence of external shocks.

The next meeting of the Board of the National Bank on discount rate issue will take place on September 24, 2018.

In May 2018, the National Bank of the Kyrgyz Republic for the first time in a year and a half reduced the discount rate by 0.25 percent — up to 4.75 percent. The indicator remains unchanged since then.