Tuesday, May 31, 2016

Kyrgyzstan cuts rate another 200 bps, inflation negative

     The central bank of Kyrgyzstan cut its policy rate by a further 200 basis points to 6.00 percent to stimulate economic activity at a time of low inflationary pressures and weak economic data.
    The National Bank of the Kyrgyz Republic (NBKR) has now cut its rate by 400 points this year following a similar-sized reduction in March. In 2015 the central bank cut its rate by a net 50 basis points following increases and decreases.
    The NBKR said it would continued to assess external and internal factors that influence inflation in an effort to keep inflation within the 5-7 percent inflation target.
    Kyrgyzstan's inflation rate dropped to minus 0.2 percent as of May 20, up from minus 0.6 percent in April but down from 0.5 percent in March and 3.4 percent as the start of the year.
   "Results of previously taken monetary policy measures are seen in decreasing inflation in the country," the central bank said, adding lower food prices and weak domestic demand supported the fall.
    It added that weak demand and stable food prices worldwide would contribute to slower growth in consumer prices while positive growth in domestic agricultural production would support this.
    In March the central bank forecast a "moderate increase in prices for 2016," with inflation close to its target by the end of the year. It did not reiterate that forecast today.
    Weak external demand and lower domestic consumption and investment also led to a 4.9 percent decline in economic output in the Kyrgyz Republic in the January - April period, the NBKR said. Excluding the output from the Kumtor gold mine, growth was zero.
    Last year Kyrgyzstan's economy expanded by 3.5 percent and in December the International Monetary Fund forecast growth this year of 3.6 percent.
    After falling sharply in 2014 and 2015, the exchange rate of the Kyrgyzstani som has appreciated since mid-February. 
    The som was trading at 68.3 to the U.S. dollar today, up 11 percent since the start of this year.

    The National Bank of the Kyrgyz Republic issued the following statement:

"On May 30, 2016, the Board of the National Bank of the Kyrgyz Republic decided to decrease the policy rate by 200 basis points to 6,00 percent. The decision becomes effective on May 31, 2016.  
Results of previously taken monetary policy measures are seen in decreasing inflation in the country. Decline in food prices and weakening of domestic demand supported this decrease in prices. Annual inflation rate in May, 2016 (as of May 20) was 0.2 percent and declined from 3.4 percent as of the beginning of the year.  
The influence of external environment on the economy of Kyrgyzstan remains ambiguous. On the one hand, relatively stable and low prices for food and raw materials on external markets have restrained influence on domestic food prices. On the other hand, difficult economic situation in the main trading partners leads to the reduction of external demand on domestic production.  
Reduction in domestic consumption and investment along with weakening of external demand and declining production volumes at the largest gold-mining company “Kumtor” led to economic decrease of 4.9 percent in January-April 2016. Excluding “Kumtor” there was a zero growth rate. For the monetary policy formulation and analysis, real GDP without “Kumtor” is more relevant indicator for the National Bank.  
In the conditions of low inflationary pressure, weak indicators on economic development, taking into account the forecast of the inflation dynamics in the medium term, the National Bank decided to continue decreasing the policy rate. This decision allows supporting measures to stimulate the real economy while maintaining low inflationary risks.  
Relatively weak demand and stable price dynamics for food in the world market will contribute to the slowdown of growth rates of consumer prices. Maintenance of the positive growth rates in domestic agricultural production will also support these factors. 
National Bank will continue to assess external and internal factors influencing inflation and conduct proper monetary policy aimed at keeping inflation rate within the 5-7 percent band in the medium term, as determined in the Main monetary policy guidelines.  

Information note: 
The next meeting of the Board of the National Bank of the Kyrgyz Republic on the monetary policy rate is scheduled for June 27, 2016. "


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