Key Policy Rate Raised to 10.5 Percent
After reviewing current economic developments at its meeting today, the NBS Executive Board voted to raise the key policy rate by 100 basis points to 10.5 percent.
In making this decision, the Executive Board took into account the need to halt the rise in inflationary pressures spurred by food price increases, as well as the effects of past depreciation of the dinar and faster than expected recovery in aggregate demand.
Over the past several months, the rise in inflation has been driven primarily by the growth in food prices. In the coming period, upward pressures on inflation will also come from higher import prices reflecting past depreciation of the dinar. At the same time, continued economic recovery and the decision to lift the freeze on public sector wages and pensions will contribute to the weakening of the disinflationary effect of aggregate demand.
The NBS Executive Board judges that y-o-y inflation will be moving above the upper end of the target tolerance band over the coming months, and that the 100 basis point increase in the key policy rate is needed to bring inflation back within the target by the end of next year (4.5±1.5% at end-2011 and 4±1.5% at end-2012).
The next rate setting meeting of the NBS Executive Board is scheduled for 9 December 2010.