The National Bank of the Kyrgyz Republic is among the six central banks worldwide that have both raised and cut its policy rate this year. In January the bank raised its rate but then cut the rate in May and July.
The result is that the rate has been lowered by a net 50 basis points this year following a total increase of 450 basis points last year to help defend the som's exchange rate and lower inflation.
The som has been depreciating against the U.S. dollar since June and was trading at 69.1 to the dollar today, down 14.8 percent this year and down 28.4 percent since the start of 2014.
The inflation rate rose to 5.8 percent in August from 5.0 percent in July and accelerated further to 6.2 percent as of Sept. 18, according to the central bank, which targets inflation of 5-7 percent.
At its last meeting in August, the central bank also said rising instability in foreign financial markets had increased pressure on the domestic currency market and this could raise inflationary pressures. But at that point the central bank said inflation had slowed from the start of the year.
Annual economic growth in the first eight months of this year of 6.8 percent was mainly driven by the expansion of production at the Kumtor gold mine, the bank said, adding that growth excluding the mine amounted to 4.5 percent.
The Kumtor gold mine is an open-pit mine near Kyrgyzstan's border with China that is owned by the Canadian firm Centerra. It is the largest gold mine operated in Central Asia by a Western-based company and produced 568 ounces of gold in 2014.
The central bank added that foreign trade and the inflow of remittances was still slowing down due to the depreciation of the currencies of its main trading partners.
The National Bank of the Kyrgyz Republic issued the following statement:
"On September 28, 2015 the Board of the National Bank of the Kyrgyz Republic decided to raise the policy rate by 200 basis points, to 10.00 percent per annum.
High economic growth in January-August of 2015 (6.8 percent) was mainly driven by the expansion of production at the "Kumtor" gold-mining company. Without "Kumtor", the real GDP growth was 4.5 percent.
However, decline in foreign trade transactions and in inflow of remittances are still observed, as well as due to depreciation of the national currencies of the main trading partners of the Kyrgyz Republic. Instability on the foreign financial markets has been remaining, which together with the above mentioned factors is one of the main reasons for increasing the pressure on the domestic currency market of the country, and which can enhance inflationary pressure in the short and medium terms.
In the middle of September of the current year (as of September 18), the inflation in annual term was 6.2 percent as compared to 5.8 percent in the previous month.
In view of forecasted dynamics of inflationary developments, the National Bank of the Kyrgyz Republic continues to monitor the situation in the national economy and will take appropriate measures of monetary policy consistent with statutory mandate. The monetary policy will be aimed at achieving and maintaining the inflation rate at the level of 5-7 percent in the medium term, which is determined by the Main directions of monetary policy of the National Bank of the Kyrgyz Republic for the medium term.
The next meeting of the Board of the National Bank of the Kyrgyz Republic on the monetary policy rate is scheduled for October 26, 2015. "