BISHKEK

Kyrgyzstan’s central bank increased the key refinancing rate by 50 basis points to 8.5 percent, amid accelerating inflation globally and a decrease in demand domestically.

“Inflationary pressures remain high domestically and globally as global commodity prices continue to rise, supported by growing liquidity in global financial markets, along with the lingering effects of disruptions to global supply chains,” the central bank said in a statement.

“Against the backdrop of the spread of the COVID-19 omicron strain, there has been a slight slowdown in the recovery of business activity in the world and in the economies of the trading partner countries of the Kyrgyz Republic.”

The Central Asian country’s economy bounced back last year and grew by 3.6 percent. The growth was mainly backed by the industrial sector and services as well as by the growing volume of remittances to the country.

“Economic activity in the Kyrgyz Republic shows a moderate recovery,” the central bank said. “The decline in output in agriculture and construction has become a deterrent to economic recovery,” it added.

Annual inflation in Kyrgyzstan reached 11.2 percent in 2021. The bank said that from the beginning of this year consumer prices rose by 0.9 percent, while annual inflation was 11.1 percent as of January 20.

“The main pressure on the price dynamics is exerted by the continuing rise in prices in the world food markets and the planned increase in excise taxes on alcohol and tobacco products in January 2022,” the bank said.

The bank said that an additional contribution to inflation this year was made by rising prices for fuels and lubricants.

According to the bank, under the current conditions, it decided to maintain the intended movement towards tightening monetary conditions and the decision to raise the rate was made in order to minimize the negative effect of external shocks on the current dynamics of inflation and inflation expectations.

The money market situation is influenced by a significant increase in the overall level of excess liquidity in the banking system, formed against the backdrop of growing uncertainty about the recovery of the global economy and ongoing geopolitical tensions, the central bank said.

“Under these conditions, the activity of banks shifted towards short-term placements on the open market. In general, money market rates showed a common direction with the key rate and were formed within the interest band,” it said.

The bank said that the situation on the domestic foreign exchange market remained stable.