The central bank of the Kyrgyz Republic left its policy rate unchanged at 8.0 percent, saying increased instability in foreign financial markets had increased pressure on the domestic currency market and this could raise inflationary pressures in the medium term.
The National Bank of the Kyrgyz Republic, which has cut its rate by 250 basis points this year after raising it by 450 points last year to curb inflation, added that inflation had continued to slow, reaching 5.6 percent as of Aug. 14 compared with 11.6 percent at the start of the year.
The central bank also said in a statement from Aug. 24 that economic growth of 7.1 percent in the first seven months of this year was mainly driven by expansion at the Kumtor gold mine as growth in Gross Domestic Product excluding the mine amounted to 4.5 percent.
Kyrgyzstan’s inflation rate rose slightly to 5.0 percent in July from 4.5 percent in June, within the central bank’s target range of 5-7 percent.
GDP rose by an annual 7.3 percent in the second quarter, up from 7.0 percent in the first quarter.
Kyrgyzstan’s som currency has been depreciating since June and was trading at 62.15 to the U.S. dollar today, down 5.2 percent this year.
The Kumtor gold mine is an open-pit mine near Kyrgyzstan’s border with China that is owned by the Canadian firm Centerra. It is the largest gold mine operated in Central Asia by a Western-based company and produced 568 ounces of gold in 2014.
The National Bank of the Kyrgyz Republic issued the following statement:
“On August 24, 2015 the Board of the National Bank of the Kyrgyz Republic decided to keep the policy rate at 8.00 percent.
Seasonal factor conditioned slowdown of inflation rate, which came to 5.6 percent in annual term as of the middle of August (as of August 14, 2015) against 11.6 percent as of the beginning of the current year.
High economic growth in January-July 2015 (7.1 percent) was mainly driven by expansion of production at the “Kumtor” gold-mining company. Without “Kumtor”, the real GDP growth was 4.5 percent.
Some decline of market makers activity in the interbank market is observed in recent months, meanwhile weighted average rates at the interbank credit market were lower than the policy rate.
There is a decline in foreign trade and the inflow of remittances, including depreciation of the national currencies of main trading partners of the Kyrgyz Republic. Instability on the foreign financial markets has increased, which together with the current factors is one of the main reasons for increasing the pressure on the domestic currency market of the country, and which could enhance inflation pressure in the medium term.
In view of forecasted dynamics of inflationary developments, the National Bank of the Kyrgyz Republic continues to monitor the situation in the national economy and will take appropriate measures of monetary policy consistent with statutory mandate. The monetary policy will be aimed at achieving and maintaining the inflation rate at the level of 5-7 percent in the medium term, which is determined by the Main directions of monetary policy guidelines of the National Bank of the Kyrgyz Republic for the medium term.
The next meeting of the Board of the National Bank of the Kyrgyz Republic on the monetary policy rate is scheduled for September 28, 2015. “