The National Bank of the Kyrgyz Republic, which targets inflation of 5-7 percent in the medium term, has now raised its policy rate by 500 basis points since July 2014.
The som began to depreciate in August last year and was trading at 59.9 to the U.S. dollar today, down 1.7 percent this year and almost 14 percent since August 1.
Kyrgyzstan's inflation rate accelerated to 10.5 percent in December from 10.2 percent in November and the central bank said preliminary data showed inflation of 10.4 percent as of mid-January.
The economy of the Kyrgyz Republic, bordering Kazakhstan to the north and China to the east, continues to slow, the central bank said, adding that Gross Domestic Product expanded by 3.6 percent in 2014, down from 10.5 percent in 2013.
This is below the 4.1 percent projected by the International Monetary Fund in July, with the country's economy hit by Russia's economic crises.
The National Bank of the Kyrgyz Republic issued the following statement:
"In view of continuing pressure on the exchange rate and, respectively, on inflation, the National Bank of the Kyrgyz Republic has decided to raise the policy rate by 50 basis points to 11.00 percent per annum.
The inflationary background formed by both external and internal factors remains high. According to the preliminary data, as of mid-January annual inflation was 10.4 percent, since the beginning of the current year - 0.4 percent.
Statistical data of 2014 show that the rates of economic growth in the Kyrgyz Republic continue to slowdown; deterioration of the economic situation is also observed in the countries - main trading partners of the Kyrgyz Republic. According to preliminary data, the real GDP growth was 3.6 percent in 2014. There is a reduction in the volumes of the foreign trade operations and decrease in the volume of remittances. Instability in the foreign financial markets along with the aforementioned factors are the main reasons of increasing pressure on the domestic market of our country and, respectively, on inflation rate.
The National Bank of the Kyrgyz Republic will continue to monitor the situation in the national economy and consistent with statutory mandate will take the appropriate measures of the monetary policy in order to bring inflation in the medium term to the range of 5-7 percent, which is specified in the Main directions of the monetary policy of the NBKR for the medium-term.
The next meeting of the Board of the National Bank of the Kyrgyz Republic, which will address the size of the policy rate, is scheduled for February 24, 2015. "