Tuesday, March 26, 2019

Kyrgyzstan maintains rate, prices to rise after deflation

      Kyrgyzstan's central bank left its benchmark discount rate at 4.50 percent but said price dynamics remain low and inflation could reach 5.0 percent by December but only average a maximum of 3.0 percent during the year.
     The National Bank of the Kyrgyz Republic (NBKR), which cut its rate by 25 basis points in February in its first easing since May 2018, also reiterated its outlook from last month that inflation should settle within its target range of 5 - 7 percent in the medium term based on a gradual increase of economic activity in the country and region.
     In February NBKR lowered its forecast for inflation to average around 3.0 percent this year from December's forecast that inflation would average 5-7 percent this year.
     Inflation in the Kyrgyz Republic fell 0.7 percent year-on-year in February from 0.4 percent in January, the first deflation since December 2016.
     As of March 15, NBKR said consumer prices were down 0.4 percent on lower food prices while a rise in prices of services and non-food products slowed, and alcohol and tobacco prices rose moderately.
     The economy is continuing to expand, with gross domestic product up 4.9 percent in the first 2 months of the year and excluding the Kumtor gold mine growth was 1.0 percent, supported by the inflow of remittances of 11.2 percent in January and a 4.4 percent rise in real wages.
     In 2018 Kyrgyzstan's economy grew 3.50 percent and last week the International Monetary Fund forecast growth this year of 3.8 percent and average inflation of 2.2 percent.
      NBKR added its monetary policy remains focused on stimulating lending and economic growth and the situation is stable in the domestic foreign exchange market.
      The Kyrgyzstani som has been steady since November last year and was trading at 69.7 to the U.S. dollar today, up 0.2 percent this year.
      In its statement on March 20, the IMF forecast the country's fiscal deficit will widen to 3.4 percent of GDP from 1.3 percent last year, and a "challenging investment climate and corruption continue to stand in the way of price sector-led diversification" so growth of around 4 percent over the next 5 years would be insufficient to reduce poverty and raise living standards.
      To help build buffers, the IMF said the fiscal deficit should not exceed 2.5 percent in the medium term and tax exemptions and the public sector wage bill should be lowered to create fiscal space to invest in human capital and infrastructure.
      Despite reform efforts, the IMF said remittances, which are susceptible to shocks, still accounts for 30 percent of the economy and gold accounts for 38 percent of exports, which could decline sharply in 2023 if the output from Kumtor is not replaced.



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