The Central Bank's BOD at its today’s meeting decided to keep the interest rate unchanged at 14% per annum, the regulator's press service reported.
Despite continued disinflation and emerging signs of more balanced economic dynamics, the persistence of certain inflationary risks requires maintaining the current tight monetary conditions, the statement said.
Inflation and inflation expectations
Annual headline inflation slowed to 6.2% in August, continuing its downward trend, while core inflation stood at around 5.5%.
At the same time, a growing share of goods and services with prices rising faster than 5% a year points to persistent underlying price pressure in the economy.
"Inflation expectations among the public and businesses have also continued to decline. However, they are easing more slowly than headline inflation, which points to the lingering influence of inflationary inertia on price formation," the Central Bank said.
Domestic demand and economic activity
The Central Bank noted that positive trends in retail trade, services, and investment point to robust consumer and investment demand. At the same time, signs of stabilization have begun to emerge in certain components of aggregate demand in recent months.
In particular, current monetary conditions are gradually normalizing the pace of credit growth in the economy, while positive real interest rates continue to support households' propensity to save.
External inflationary risks
Elevated global prices for commodities, food, and energy are expected to keep exerting pressure on domestic inflation over the medium term through import prices and transport and logistics costs.
"The scale of secondary effects from external price shocks on domestic inflation will largely depend on the dynamics of domestic demand and the structural measures taken," the Central Bank said.
The strengthening of the som's real effective exchange rate over the course of the year, amid the weakening of some major trading partners' currencies, has helped ease inflationary pressure through import prices.
Domestic inflationary risks
The ongoing liberalization of regulated prices could amplify secondary inflationary effects through production costs and service prices.
Maintaining the current tight monetary conditions is considered necessary to prevent these risks from developing into sustained inflationary processes, to soften their potential secondary effects, and to ensure a steady decline in inflation expectations.
"The Central Bank will closely monitor inflation and inflation expectations, domestic demand factors, and changes in external economic conditions, and will continue to maintain the monetary conditions needed to bring inflation down to the 5% target by the end of 2027," the regulator said.
The Central Bank board's next meeting on the policy rate is scheduled for October 28.
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