Tuesday, January 26, 2021

Kyrgyzstan maintains rate as inflation accelerates

      Kyrgyzstan's central bank, one of the only four central banks in the world to have tightened its monetary policy stance in 2020, once again left its key interest rate steady, saying economic activity remains low and a return to sustainable growth will depend on the domestic level of the COVID-19 pandemic and the speed of the recovery of its trading partners.
     The National Bank of the Kyrgyz Republic (NBKR) kept its discount rate at 5.0 percent, unchanged since it was raised in February last year by 75 basis points to dampen inflationary pressures.
     Inflation in Kyrgyzstan rose for the fourth month to 9.7 percent in December and the central bank said it had risen further to 9.9 percent as of Jan. 15.
     NBKR is in the process of transitioning to an inflation targeting monetary framework and currently targets inflation of 5.0 to 7.0 percent.
     In addition to rising global prices for food and raw materials, the cost of oilseeds and sugar is also showing steady growth and a planned rise in excise taxes on alcohol and tobacco in the first quarter of this year will add further upward pressure on inflation throughout the year, NBKR said.
    But in the current economic conditions, the central bank expects inflation by the middle of the year will stabilize after accelerating and by the end of 2021 inflation will return to single digits.
    During 2020 the central bank noted an excess of demand for foreign currency, which led to interventions in the foreign exchange market, with US$518.5 million of foreign exchange sold.
    International reserves are at a sufficient level, the bank said, at US$2.8 billion, and enough to cover about 6 months of imports.
    Last year Kyrgyzstan's som plunged 18 percent from mid-March to early April but then rebounded by late May, helped by NBRK's intervention. 
    However, from early June 2020 the som then began to weaken again and has continued to depreciate and since November it has traded close to the lows seen in April last year.
    Today the som was trading at 84.79 to the U.S. dollar, the same as in November and December last year and the level seen from April 4 to April 13, 2020.
     Kyrgyzstan's gross domestic product shrank 8.6 percent in 2020 after growing 4.5 percent in 2019.



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