The Central Bank Board decided to tighten monetary conditions amid sustained inflationary pressures, growing demand, and rising inflation expectations.
This decision aims to contain inflation expectations, considering the inflationary risks anticipated in the coming months, and to create sufficient conditions for achieving the 5 percent inflation target in the medium term.
Headline inflation has slightly increased since the beginning of 2025, reaching 10.1 percent year-on-year in February.
This trend was driven by rising prices for certain goods and services, such as fuel, utilities, transportation, education, and medical services, which also led to higher inflation expectations. In February, inflation expectations of households reached 15.3 percent, while expectations among business entities amounted to 13.8 percent.
In recent months, the high inflation of services has been linked to strong aggregate demand factors, including the increasing volume of cross-border remittances and consumer loans. This is also reflected in the dynamics of retail trade turnover and revenues from paid services.
The real effective exchange rate has shown a downward trend due to the appreciation of major trading partner currencies since the beginning of the year, moving closer to its medium-term trend.
Addressing inflationary processes in the economy and ensuring a balance between aggregate demand and supply require tightening monetary conditions.
Taking these factors into account, the Central Bank Board decided to increase the policy rate by 0.5 percentage points to 14 percent per annum to ensure price stability in the medium term.
The tightening of monetary conditions will help slow down inflationary processes in the coming quarters by ensuring a balanced aggregate demand and reducing price pressures. This will help to bring headline inflation down to 7-8 percent at the end of the year.
The Central Bank will continue to maintain sufficiently tight monetary conditions to ensure that inflation gradually declines to the 5 percent target level in the medium term.
In case of stronger-than-expected pressures on aggregate demand and prices in the economy in the coming quarters, the level of restrictiveness of monetary conditions will be reconsidered.
The next meeting of the Central Bank’s Board to review the policy rate is scheduled for April 24, 2025.