Why is this important
The decision to maintain the key interest rate reflects the Central Bank’s desire to maintain inflation on a stable downward trajectory, despite persistent risks from supply and demand. Maintaining relatively tight conditions is aimed at consolidating the achieved progress and strengthening confidence in the national currency, which is crucial for medium-term sustainable development.
What happened
- The Central Bank maintained the key interest rate at 14% per annum, with a focus on reducing inflation and minimizing pro-inflationary risks.
- The regulator noted that relatively tight monetary conditions contribute to a reduction in inflationary pressures and inflation expectations.
- At the same time, inflationary risks associated with stable consumer demand, supply factors, and high price dynamics in the service sector remain in the economy.
- The adopted decision is aimed at maintaining a stable trajectory of inflation reduction in the medium term.
Numbers and facts
- In November, annual inflation decreased to 7.5%, which was facilitated by the slowdown in core inflation and the strengthening of the exchange rate.
- Core inflation in November was 6.3% year-on-year.
- Service inflation remains higher than overall inflation.
- Inflation expectations of the population and businesses continued to decline in November.
- By the end of 2025, overall inflation is expected to be around 7.3%.
Forecast
- The forecast was revised downwards due to a stronger decrease in imported inflation and inflation expectations due to the strengthening of the national currency.
- According to updated forecasts, inflation will be around 6.5% by the end of 2026.
- Economic activity remains high, forming higher growth rates than potential.
- The growth of demand in the labor market, the increase in revenues from trade and services, and the growth of interbank transactions confirm the high economic dynamics.
- By the end of the year, the economic growth rate is expected to be around 7-7.5%.
- At the same time, risks from the supply side, including individual food products, rising transport prices, and secondary effects from regulated price indexation, remain.
Inflation
- Favorable external conditions contribute to the formation of a exchange rate close to the long-term equilibrium level.
- Against the backdrop of stable nominal interest rates, a decrease in inflation raises real interest rates, stimulating savings in national currency and the growth of term deposits.
- High retail lending rates could exacerbate inflationary pressures in the future while maintaining high consumer demand.
- Under these conditions, the Central Bank maintained the key interest rate unchanged at 14% per annum.
- The regulator will continue to ensure sufficient rigidity of conditions to achieve the 5% inflation target.
- If necessary, the monetary policy parameters will be revised based on the dynamics of inflation and risks.
Context
- In conditions of high economic activity, regulators often adhere to a cautious policy to prevent the economy from overheating.
- Strengthening the national currency traditionally reduces imported inflation and contributes to price stabilization.
- The dynamics of the service sector in many countries is the main source of sustained inflationary pressures.
- The rise in global commodity prices supports exports but also increases risks to domestic price stability.
