At the meeting on March 16, the Central Bank’s board decided to lower the interest rate by 1 percent and set it at 14 percent per annum.
According to the report of the Central Bank, it has been observed that the inflation rate in the economy has reached its highest point and started to drop. At the same time, signals are emerging on the negative impact of tight external financial conditions on domestic economic activity.
It is said that the reduction of the main rate by 1 percentage point will make it possible to completely remove the additional burden imposed by the increase in the interest rate for risks in March of last year.
In this case, it is emphasized that the basic rate at the annual level of 14 percent ensures the preservation of relatively strict monetary and credit conditions in the downward dynamics of the inflation forecast (8.5-9.5 percent).
In January-February of this year, the annual inflation indicator decreased slightly to 12.2 percent, and confidence is growing for a significant decrease in the next quarter. According to the observations, it is seen that in the first two weeks of March, the prices of basic food products were relatively balanced in the consumer markets, and after the increase in January, they changed to a decreasing dynamic.
The basic inflation index, calculated without taking into account the changes in the prices of certain goods and services with seasonal and administrative effects, the growth trend that started in the second quarter of last year changed to a downward trend from the beginning of this year and slowed down from 13.8 percent in December to 13.3 percent in January and 13.2 percent in February. .
According to the results of the February survey, it was observed that the inflation expectations for the next 12 months have decreased significantly compared to the results of January, which, together with the dynamics of core inflation, will create conditions for the stabilization of prices in the coming months, the CB said.
It is noted that a certain level of risks and uncertainties remain in the external economic conditions. Global inflation continued to moderate in February, mainly driven by lower prices in the energy and food sectors.
“In addition to the strong positions of the leading central banks on reducing inflation, the growing demand for safe assets against the background of the observed situation in the international banking sector is increasing the volatility in the financial and commodity markets.
Strict conditions in the international financial markets and the devaluation of exchange rates in some trading partners, on the one hand, make it difficult to re-attract external resources to support domestic economic activity, and on the other hand, they are widening the imbalances in currency flows,” said CB.
It is reported that the prices and expectations formed in the world food markets create the basis for favorable conditions for goods imported into the country. This, in turn, serves as a buffer to the inflationary effects of imports in food groups.
In January-February 2023, the impact of short-term risks was partially manifested in domestic economic conditions. At the end of January, there was a slowdown in the growth rates of retail trade, industrial production and construction work. Although growth in the service sector has slowed compared to the same period last year, growth rates in this sector are higher than in other sectors. Taking into account the temporary nature of the risks and the measures taken in time, the balancing of economic activity and the recovery of sector indicators are expected by the end of the first half of the year.
The next meeting of the Central Bank board to review the key rate is scheduled for April 27, 2023.
