Inflationary processes and expectations in the economy were observed to accelerate slightly following the decline in the first half of the year, against the background of changes in the supply of products and demand factors of inflation.

The current level of the policy rate ensures the necessary monetary conditions to form the inflation within the range of forecast indicators by the end of the year.

Headline inflation, which had a downward dynamic since the beginning of the year, accelerated to 9.2 percent in the last quarter. Food prices, one of the structural factors of inflation growth, accelerated to 11 percent. This was explained by the increase in the contribution of fruits and vegetables and regulated price changes in headline inflation.

Core inflation fell comparing to the beginning of the year to 10.3 percent in September. Despite this downward trend, a significant discrepancy with headline inflation remains. This requires maintaining relatively tight monetary conditions in the economy due to a high increase in the prices of persistent components of inflation.

Inflation expectations of the households and entrepreneurs for the next 12 months are down to 13.5 and 14.2 percent, respectively, following a rise in August. Expectations in the economy remain highly sensitive to short-term shocks.

Uncertainty remains about the duration of global inflationary processes. The situation with the inflation rate and current dynamics of exchange rates in major trading partners puts pressure on the soum, causing strengthening of the real effective exchange rate.

Positive trends were also observed in the real sector of economy, and based on the results of 9 months of the current year, the GDP grew by
5.8 percent compared to the corresponding period of the last year.

High rates of economic growth were driven by the increase in consumer expenditures under the influence of fiscal stimulus, as well as significant increase in the volume of decentralized investments.

A positive growth of aggregate demand continues in the economy, which was manifested in the increase of the volume of market services by
12.1 percent compared to the previous year, as well as in the volume of cash receipts from trade and paid services by 28 percent.

At the same time, cross-border remittances declined by 33.7 percent compared to the previous year, due to high base effect. However, they increased by 1.4 times compared to the corresponding period of 2021.

There was also observed an increase in activity in the interbank money market, where the weighted average rates on interbank deposits and repos formed fully in the interest rate corridor.

Relatively tight monetary conditions ensure optimal growth rates of loans to the economy. In addition, the high growth rates in retail loans observed in recent months are being balanced by the use of macroprudential measures, and if required, additional measures may be applied in the future.

Positive real interest rates provide high activity in the retail segment of the deposit market. In September, the weighted average interest rates on the term deposits of the individuals in the national currency were 21.1 percent, and the annual increase in the volume of term deposits as of October 1 was 47.1 percent, including a 52.3 percent increase in the households’ term deposits.

According to the updated forecasts that are based on the balance of pro-inflationary and anti-inflationary factors, inflation at the end of the current year is expected to be in the forecast range.

Pro-inflationary factors persist in the economy, including higher seasonal food prices and the primary and secondary effects of changes in regulated prices on headline inflation.

In assessing the impact of monetary conditions on aggregate demand, prices and inflation expectations, the central bank ensures all monetary tools are focused on gauging inflation within the current year’s forecast and achieving targets over the medium term.

The next Board meeting to review the Central bank policy rate is scheduled for December 14, 2023.