At the meeting on September 12, 2024, the Board of the Central Bank decided to keep the policy rate unchanged at 13.5 percent per annum.

Strong demand in the economy and the observed price growth for certain types of food products and energy resources require maintaining the current level of monetary tightness.

High economic activity and steady increase in household incomes are the key factors stimulating aggregate demand.

In order to reduce inflation to the projected levels by the end of this year and achieve the 5 percent target in the medium term, the Board of the Central Bank decided to keep the policy rate unchanged at 13.5 percent.

In the last three months, annual headline inflation stayed flat and amounted to 10.5 percent in August. In the current year, lower prices for fruit and vegetables had a downward impact of about 1 percentage point on inflation. However, having a declining trend since the beginning of the year, annual core inflation ceased to slow down after June.

In January-July, the economy demonstrated strong production activity and the gap between aggregate demand and supply narrowed. In particular, industrial production, construction and services are expanding at a faster pace compared to the same period of last year.

Positive economic activity is also reflected in the higher revenues from trade and paid services, export earnings and remittances compared to the corresponding period of the previous year.

Given an increase in the overall liquidity of the banking system and the policy rate cut in July, interest rates in the money market declined slightly. This, in turn, resulted in lower yields in the government securities market.

In the forthcoming period, strong investment and consumer activity will continue supporting aggregate demand. State budget expenditures and increase in direct investments are expected to contribute to investment demand, while large volume of cross-border remittances will improve households’ real incomes and have an effect on consumer demand dynamics.

Meanwhile, the increase in pensions and public sector wages in September-October will serve to boost consumer demand in the coming quarters.

Inflation expectations of households and businesses decreased to 11-12 percent in July under the influence of stable dynamics of exchange rate and food prices, and formed at 12-13 percent in August due to the expected rise in pensions and wages in public sector as well as increase of prices for fuels.

With an improving foreign trade balance and a significant increase in remittances, the current account deficit is expected to narrow. In turn, this will reduce the pressure from fundamental factors on the exchange rate and contribute further to its stable dynamics.

In order to achieve the projected rate of inflation by the end of this year, the policy rate should be kept unchanged at the current level.

High saving activity and attractiveness of deposits in the national currency owing to the current relatively tight monetary conditions are expected to balance aggregate demand and ensure downward inflation dynamics.

In the medium term, the Central Bank will continue maintaining relatively tight monetary conditions aimed at achieving the 5 percent inflation target. Future decisions will be based on the balance of supply and demand in the economy as well as inflationary factors.

The next meeting of the Central Bank’s Board to review the policy rate is scheduled for October 24, 2024.