Taking into account the current expectations influenced by strong demand in the economy, the Central Bank Board kept the policy rate unchanged. According to forecasts, inflation is expected to amount to 8-9% at the end of the year.
Current monetary conditions are aimed at ensuring a steady downward trajectory of inflation to the 5% target.
Headline inflation has remained at 8.8% in recent months. Despite a deceleration in inflation in the goods component of the consumer basket, inflation in services slightly accelerated during the last quarter. This indicates that demand-side pressures on the headline inflation rate are likely to increase in the outlook.
Generally, the emergence and persistence of inflationary processes in the economy is attributed to the incomplete adaptation of some supply components to the strong demand environment.
Moreover, according to recent surveys, perceived inflation and inflation expectations still remain high.
Acceleration of economic growth to 6% was mainly driven by strong increase in investment in fixed assets. Upward dynamics of loans to the economy, high fiscal incentives and remittances were also significant contributors to economic growth.
Global inflation is expected to further cool down this year owing to tight global financial conditions, rebalancing of labor markets and the downward dynamics of commodity prices.
Given the current economic developments and expectations in the trading partners, no high pressure on the real exchange rate of the soum is expected in the coming months.
Along with a reduction in the structural surplus of liquidity in the banking system, there was an increase of the activity in the money market. Through monetary operations, conditions will be ensured for short-term interest rates in the money market to develop within the interest rate corridor throughout the year.
Amid high real interest rates on deposits in the national currency, bank deposits are expected to further increase.
According to the updated forecasts, in 2024 the headline inflation is expected to amount to 8-9%, and the core inflation rate is expected to be around 7-8% under the baseline scenario.
The macroeconomic development scenario this year will depend on external economic conditions, as well as internal factors of macroeconomic stability, such as the pace of structural reforms, fiscal discipline and the effectiveness of monetary policy.
Meanwhile, measures are being taken to mitigate the potential one-off effect of expected changes in some regulated prices and recent adjustments in excise duty and value added tax on domestic prices in the coming months.
External risks are largely associated with increased global fragmentation and longer persistence of high global inflation.
Real GDP growth is projected to be around 5.5-6%. The main contributors to economic growth are, on the one hand, consumer demand, and on the other hand, foreign and domestic direct investments increasing under the influence of structural reforms.
The Central Bank will further take informed decisions on the policy rate based on the updated inflation projections and ensure appropriate monetary conditions aimed at achieving the 5 percent inflation target.
The next meeting of the Central Bank Board to review the policy rate is scheduled for March 14, 2024.
