Central Bank leaves interest rate unchanged at 14 percent per annum

On September 14, 2023, the board of the Central Bank decided to keep the interest rate unchanged at 14 percent per annum.

It was reported that despite the slight slowdown of the inflationary processes in the economy, increasing pressures on the prices of some product groups remain. An increase in inflationary expectations was also observed in August of this year.

Due to the fact that electricity and gas tariffs for the population are left unchanged, there will be no primary effects on inflation from this group. The secondary effects of the tariff increase for business entities are expected to be within the range taken into account in the inflation forecasts.

Annual inflation stood at 9 percent in August after a slight decline at the beginning of the summer months. The acceleration of price growth in the services sector from 8.2 percent to 8.5 percent was one of the factors behind the increase in inflation.

Core inflation fell at a slower-than-expected rate (10.7 percent per annum). At the same time, the downward trend of core inflation is taking a stable shape.

Inflationary expectations of the population for the next 12 months changed the direction of the trend and increased to 14.2 percent. A similar trend was observed in the expectations of business entities and was equal to 14.4 percent. The respondents pointed out such factors as exchange rate changes, and growth in fuel and energy prices as the main factors of the increase in expectations.

Global inflation is decelerating mainly due to the stabilization of energy resources and commodity prices. At the same time, core inflation remains significantly high and stable in many countries. A tight labor market is driving up wages, creating persistent inflationary pressures in the services sector.

The correction of the soum exchange rate in August was also reflected in the real effective exchange rate, which began to deviate from its long-term trend. It is said that factors that will dramatically change this dynamic are not expected until the end of the year.

The total volume of cash receipts increased by 30.4 percent in January-August, and receipts from trade and paid services by 27.7 percent. Also, the volume of cross-border remittances decreased by 32.4 percent compared to the previous year, showing a reverse trend due to the high base effect, while maintaining a significant increase compared to the indicators of 2021.

The main rate of the Central Bank remains unchanged and its transmission to the money market serves to form the short-term liquidity price at a positive level of 3-4 percent in real terms, thereby ensuring "relatively strict" monetary and credit conditions, the CB said.

Taking into account the current domestic and foreign economic conditions, the inflation rate is expected to be within the forecast corridor of 8.5-9.5 percent by the end of the year.

It is reported that leaving the main rate unchanged at the current level will create the necessary conditions for the formation of inflation within the forecast by the end of the year and is a necessary measure to prevent the influence of monetary factors on prices.

The next meeting of the Central Bank's management to review the key rate is scheduled for October 26, 2023.