National Bank of Kyrgyzstan Slashes Its Key Lending Rate, Explains Move Amid Weaker Inflation
Kyrgyzstan's national bank has lowered its discount lending rate by 200 basis points to 11%, from 13% previously. As reported by the Kyrgyz National Bank's press service, its monetary policy since the beginning of 2022 has focused on limiting the growth of inflationary pressures and ensured stabilization of price dynamics in the country, which led to slower price growth and bringing current inflation within the medium-term target and reducing the level of inflationary expectations of economic entities. Under these conditions, the National Bank decided to reduce the size of the discount rate to 11%. "Inflationary processes in the Kyrgyz Republic continue to weaken. The indicator of annual inflation in April 2024 amounted to 5.2 percent, down from 7.3 percent in December 2023, and is near the lower boundary of the medium-term monetary policy target of 5-7 percent. [Within] the structure of inflation, a pronounced slowdown in price growth is observed in the food group of goods (to 1.1 percent in April 2024 from 3.4 percent in December 2023), which is also influenced by the decline in prices in world food markets. The growth rate of prices for non-food goods and services is decreasing, with more restrained dynamics," explained the bank. In Kyrgyzstan economic activity is robust. Real GDP growth in the first quarter (January-March) of 2024 amounted to 8.8%. As before, the main contributions to economic growth came from the services sector, construction and manufacturing industries. Domestic consumption remains elevated, including at the expense of growth in consumer lending, and is helped along by an increase in net inflows of remittances into the country as Russia's acute worker shortage due to its war in Ukraine helps Central Asian migrant laborers. Despite the persistence of uncertainty in the external economic environment, there is a decrease in the intensity of the influence of external inflationary factors, the National Bank said. "The country's banking sector remains stable and demonstrates growth of key indicators. In general, commercial banks have sufficient liquidity, which creates the basis for further lending to the real sector of the country. In the money market, short-term interest rates continue to be formed within the interest rate corridor set by the National Bank. The domestic foreign exchange market is stable. The adopted decision corresponds to the course of the National Bank's monetary policy, aimed at maintaining price stability in the country and creating conditions for macroeconomic stability," the central bank's press service summarized.
