Central Bank keeps interest rate unchanged at 13.5%

"In recent months, the economy has continued to experience strong demand and price pressures, which have caused inflation to decline more slowly than anticipated, with inflation expectations rising. It is expected that inflation will end the year near the upper end of the forecast range. To manage inflationary trends and expectations, and to ensure a reduction of inflation to the 5% target in the medium term, the current tight monetary conditions will be maintained," the statement reads.

Over the past two months, the annual inflation rate has slightly decreased, reaching 10% by the end of November. This decline is mainly attributed to the stabilization of food prices. However, the risks of rising prices in services and non-food goods remain, driven by strong consumer and investment activity, which continues to support overall demand in the economy.

Changes in household spending on primary needs and secondary effects from energy price liberalization due to cold weather have influenced inflation expectations. In November, inflation expectations for the population and entrepreneurs accelerated to 13.7% and 12.7%, respectively.

In the past four months, core inflation has remained around 7%, with non-food goods and services experiencing relatively high core inflation levels. The rising revenue in retail trade and services further suggests that demand factors continue to exert pressure on the economy.

Furthermore, stable growth in overall demand and activity in the labor market point to the persistence of inflationary pressures over a longer period. With increasing wages and remittances from abroad, real household incomes are rising, which, in the context of high investment activity, will continue to support overall demand in the coming months.

As a result, GDP growth is expected to show stable trends in the second half of 2024, with an estimated annual growth of 6-6.5%.

Interest rates in the money market and the returns on government securities indicate that monetary conditions are being maintained at a relatively tight level. High real interest rates in the banking system are encouraging greater household savings. The healthy growth in lending and rapid expansion of deposits are expected to balance overall demand and reduce the impact of monetary factors on inflation.

Given these factors, and in order to ensure price stability in the medium term, the Central Bank’s board has decided to maintain the key interest rate at 13.5% annually.

To achieve a steady reduction in inflation to the 5% target over the medium term, the monetary policy will continue to be kept at a sufficiently tight stance. Special attention will be given to the balance between demand and supply, inflation expectations, and the pace of structural reforms.

If there are signs that the current high demand and price pressures will intensify in the coming quarters, the possibility of an interest rate hike will be reconsidered.