The National Bank of they Kyrgyz Republic, which has cut its rate by a net 50 basis points this year after both hiking and cutting the rate, said future inflation will be determined by the foreign exchange market, foreign trade, the state budget and inflation expectations.
The central bank's reference to intervention in the foreign exchange market in its statement from Dec. 28 is new compared with its statement from late October, just as the reference to inflation expectations is new.
The Kyrgyzstani som started falling sharply in September but has been stable this month. The som was quoted at 75.8 to the U.S. dollar, largely unchanged from Nov. 28 but down 18 percent from Aug. 31 and down 22.3 percent since the start of this year.
Kyrgyzstan's inflation rate decelerated to 3.0 percent in December from 3.8 percent in November from 4.9 percent in October, below the central bank's target of 5-7 percent.
Earlier this month the International Monetary Fund (IMF) said the central bank's monetary policy will remain on a tightening bias to contain inflation pressures along with continuing to pursue a flexible exchange rate policy to safeguard foreign exchange reserves and preserve competitiveness, with interventions limited to smoothing short-term fluctuations.
The economy of Kyrgyzstan, located between China to the south and Kazakhstan to the north, has been hit by slower global growth, falling gold prices, remittances and currency depreciations in the region.
Despite lower production at the Kumtor gold mine, the central bank said growth remains positive, noting overall growth of 3.6 percent in the January to November period, down from 4.0 percent in the same 2014 period. Excluding output from Kumtor, growth in the 11 months was 3.8 percent compared with growth of 4.8 percent in the same 2014 period.
The IMF forecasts total growth this year of 2.4 percent, or 3.4 percent in non-gold Gross Domestic Product, down from 2014's growth rates of 3.6 percent and 4.6, respectively. In 2016 total growth is seen at 3.6 percent, with non-gold output up by 3.2 percent.
Inflation is forecast to average 7.4 percent this year, rising to 8.9 percent in 2016 before easing to 6.9 percent in 2017.
The country's gross international reserves are estimated by the IMF to decline to US$1.770 billion this year from $1.856 billion in 2014 and then decline further to $1.586 billion in 2016 before rising to $1.776 billion in 2017.
The National Bank of the Kyrgyz Republic issued the following statement:
"On December 28, 2015, the Board of the National Bank of the Kyrgyz Republic decided to keep the monetary policy rate at 10.00 percent.
Despite the ongoing recession and the slowdown in economic activity in the countries - main trading partners, the Kyrgyz Republic still has positive growth, in spite of slight slowdown, due to the decrease of production at the “Kumtor” gold-mining company. Economic growth in January-November of 2015 was 3.6 percent, without “Kumtor” the real GDP growth was 3.8 percent (in January-November 2014 the real growth was 4.0 percent, without “Kumtor” 4.8 percent).
In December annual inflation rate was 3.0 percent, it has declined by 0.8 from November, which was 3.8 percent. It was mainly due to a decline in domestic prices for bakery and meat products as well as petroleum products.
Further inflation dynamics will be determined by the situation in the foreign exchange market, dynamics of foreign trade relations within the EEU, the level of evenness of the state budget spendings and inflation expectations.
The National Bank of the Kyrgyz Republic will continue to monitor the situation at the domestic foreign exchange market and continue forex interventions to smoothen large exchange rate fluctuations.
The National Bank of the Kyrgyz Republic will continue 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 monetary policy guidelines 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 scheduled for February 29, 2016. "