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Kyrgyzstan holds rate after 3 raises, hikes not ruled out

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     Kyrgyzstan’s central bank, which has already raised its policy rate three times this year, kept its rate steady, noting the spread of new strains of COVID-19 and a slow rollout of vaccines, but added it did not exclude further changes to its monetary policy stance in the event of the emergence of any risks.
     The National Bank of the Kyrgyz Republic (NBKR) left its policy rate at 7.50 percent following a board meeting on Sept. 1. 
      After embarking on a monetary easing cycle in March 2016, NBKR changed tack in February 2020 – just as the pandemic was beginning to sweep through the world – and raised its rate as food prices were beginning to rise.
     While 93 central banks worldwide last year slashed interest rates and injected liquidity to support economic activity during the pandemic, NBKR kept its rate steady.
     But with inflationary pressures building, NBKR began tightening its policy in February this year and then continued in April and in July, raising its rate by a total of 250 basis points. In addition, the central bank has began reducing excess liquidity in the banking system to curb inflationary pressures.
     Although inflation has continued to rise and rose to 14.6 percent in July from 14.2 percent in June and 10.1 percent in January, the central bank said there is still a lot of uncertainty about the development of the global and regional economies due to the emergence of new strains of COVID-19 and the slow and uneven process of vaccinating people.
      However, NBKR also said economic activity in its main trading partners is being supported by stimulus measures and inflationary pressures are rising amid a rapid recovery of demand and a limited supply of some goods in global markets.
      Inflation in the Central Asian republic of Kyrgyzstan is influenced by the rise in global food prices and while consumer price inflation has risen, the cost of seasonal fruits and vegetables has limited inflation. 
      However,  a possible rise in administered prices and tariffs could further boost inflation this year, the central bank said.
      The economic recovery of Kyrgyzstan slowed in the second quarter of this year, with gross domestic product down 1.6 percent in the January to July period from last year, with the main constraints on economic activity seen in industrial production and agriculture, the bank said.
     ”The dynamics of domestic demand is showing a gradual recovery, but has not yet reached the pre-pandemic level,” NBKR said, adding the inflow of remittances grew 31.1 percent in the first seven months to about US$1.1 billion.


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