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Key Policy Rate Kept Unchanged

At its meeting today, the NBS Executive Board voted to keep the key policy rate at 3.0%.

In making this decision, the Executive Board took into account the expected movement in inflation and its underlying factors going forward, and the effects of past monetary policy easing.
Inflationary pressures remained low even in conditions of strong economic growth. Inflation continued to move within the target tolerance band, measuring 2.1% in September. According to our November central projection, year-on-year inflation will remain low and stable, moving in the target tolerance band (3.0±1.5%) until the end of the projection horizon, i.e. in the next two years. In the medium-term, inflation movements will be primarily determined by the gradual rise in aggregate demand. Both the financial and corporate sectors expect that the achieved price stability will be maintained, as signalled by their inflation expectations anchored around the 3% midpoint for both one and two years ahead.

The Executive Board estimates that the effects of the past monetary policy easing have contributed to the acceleration of economic growth, which in the year to date posted the highest rate in the past ten years – 4.5% year-on-year. A high impetus to growth came from investment, which will continue to spur manufacturing exports in the coming period. Investment growth is supported by favourable financing conditions and a rise in lending. Also, the net inflow of foreign direct investment, which more than fully covers the current account deficit, reflects positively on export growth and narrows external imbalances in the medium-term.

The Executive Board judges that caution in monetary policy conduct is still mandated, primarily because of developments in the international environment. Global oil prices are volatile and therefore uncertain for the period to come. Judging by futures, oil prices are likely to stabilise until end-2018 and trend somewhat lower until end-2019. Inflation in the international environment is also somewhat higher this year – chiefly due to the global oil price increase. The expected further rate hikes by the Fed and the wind-down of the QE programme by the ECB in the remainder of the year could affect capital flows to emerging markets. In addition, rising protectionism in international trade fuelled uncertainty in the international financial market, which could diminish investors’ readiness to invest. Nevertheless, the Executive Board points out that the resilience of our economy to potential negative effects from the international environment has increased, owing to improved macroeconomic indicators and prospects going forward.

At its meeting today, the NBS Executive Board adopted the November Inflation Report, which will be presented to the public on 16 November. On this occasion, monetary policy decisions and the underlying macroeconomic developments will be explained in more detail.

The next rate-setting meeting will be held on 6 December.

Governor’s Office