08/08/2024
At its meeting today, the NBS Executive Board voted to keep the key policy rate at 6.0%. The rates on deposit (4.75%) and lending (7.25%) facilities also remained unchanged.
In making the decision, the Board highlighted that the key policy rate was cut by a total of 50 bp at the previous two meetings and that the effects of past measures are yet to play out. Moreover, although inflation has retreated within the target band, monetary policy caution is still needed.
As noted by the Board, caution is also mandated by the developments in the international environment, notably the still elevated geopolitical risks and their impact on the global prices of energy and other primary commodities. The estimates of global oil price trends differ among institutions due to international uncertainty, numerous supply- and demand-side factors, and mixed data on China’s growth outlook. To an extent, caution is needed also because global inflation’s slowdown is likely to be more gradual than anticipated, wherefore the pace of monetary policy easing by leading central banks is likely to be slower too. Moreover, the impact of weather conditions on the outcome of this year’s world and domestic agricultural season remains uncertain.
In line with the Executive Board’s expectations, y-o-y inflation returned within the bounds of the target tolerance band in May, thereafter slowing further to 3.8% in June. The slowdown of inflation over the past months was facilitated by all inflation components. The Executive Board expects inflation to continue moving within the target band (3±1.5%) over the entire projection horizon. According to the August central projection, after edging up briefly in July, inflation should slow and come close to the 3% target midpoint during the following year. The temporary rise in July inflation will mostly be attributable to a series of one-off hikes of some food items, reflecting the increase in the global prices of these products or the raw materials for their manufacture, as well as some services classified within administered prices. After July, inflation will decrease again owing to the continued restrictive monetary conditions, lower imported inflation and the anticipated fall in the global oil price, in line with futures. The fall in inflation expectations will also yield a contribution, indicating the high credibility of the NBS’s monetary policy.
According to the SORS flash estimate, in Q2 as well economic activity recorded stronger y-o-y growth (4.2%) than envisaged by the May projection. Favourable developments in the real sector are expected to be maintained in the remainder of the year, led by elevated domestic demand. Stronger private consumption should be supported by the rise in real income on account of higher wages and pensions and by the inflation decline, while fixed investment growth should be underpinned by the increased profitability of the corporate sector in recent years, robust FDI inflow and government capital expenditure, primarily for investment in transport infrastructure. The Executive Board judges that though domestic demand will lead growth going forward as well, it will not have any major impact on inflation.
The NBS Executive Board will continue to follow closely developments in the domestic and international market and make monetary policy decisions based on the assessment of incoming data, the outlook for inflation and its key factors, and the effects of past monetary policy measures. In making decisions, the Board will remain mindful of the preservation of financial stability and favourable growth prospects.
At today’s meeting, the Executive Board adopted the August Inflation Report with the latest macroeconomic projections that will be presented to the public in more detail at a press conference on 14 August, along with additional explanations of monetary policy decisions.
The next rate-setting meeting will take place on 12 September.
Governor's Office
