No Change in Key Policy Rate
At its meeting today the NBS Executive Board voted to keep the key policy rate unchanged at 3.0%.
The Executive Board’s decision is based primarily on the outlook for inflation and its underlying factors, as well as on the effects of monetary policy easing thus far. After touching this year’s low in April, inflation has been moving steadily towards the target, measuring 2.3% in June, consistent with expectations. Inflation is expected to move within the target band until the end of the projection period, i.e. over the next two years. This expectation is supported also by the movements in core inflation which has been running at the minimum level of around 0.8% y-o-y for the past four months. In addition, both one-year and two-year ahead inflation expectations of the financial and corporate sectors remain low and anchored around the 3% target.
The Executive Board stated that economic growth is accelerating, with a high share of investment that will continue to support diversified growth of export-oriented industries going forward. Investment growth is aided by favourable financing conditions and the increase in lending, as well as by the FDI inflow which is more than sufficient to cover the current account deficit and to contribute to its reduction in the medium term.
The Executive Board believes that caution in the conduct of monetary policy is still needed, primarily due to uncertainties in the international commodity and financial markets. Global oil prices remain volatile though they are expected to stabilise until end-2018, judging by futures, and trend to a somewhat lower level until end-2019. The current oil price hike is expected to push up inflation in the international environment. The monetary policies of leading central banks, the Federal Reserve System and the European Central Bank, are expected to be normalised further, which could negatively affect capital flows towards emerging markets. In addition to geopolitical tensions, uncertainties pertain to the strengthening of trade tensions and potential effects on global economic growth and volatility in commodity and financial markets. Still, the Executive Board underscores that the resilience of our economy to potential negative effects from the international environment has increased owing to favourable macroeconomic indicators and prospects for the coming period.
The next rate-setting meeting of the Executive Board will be held on 9 August 2018.