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Key Policy Rate Kept on Hold

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

In making the decision, the Executive Board was guided primarily by the outlook for inflation and its factors in the domestic and international environment.

Keeping the key policy rate on hold, the Executive Board stated that inflation has been firmly under control for six years in a row and that it will remain so going forward. Consistent with NBS expectations and announcements, y-o-y inflation continued to move within the target band (3.0±1.5%), measuring 3.1% in April. The Board judges this to be its peak value for this year. Inflation is expected to embark on a downward path from May onwards, moving close to the lower bound of the target band in the first half of 2020 and heading steadily back towards the target midpoint in the period thereafter. Low inflationary pressures are also indicated by the persistently low and stable core inflation and inflation expectations of the financial and corporate sectors anchored around the 3.0% target for both one and two years ahead.

Based on the analysis of current macroeconomic trends, the Executive Board assessed that caution in monetary policy conduct was still warranted, chiefly because of persistent uncertainty in the international environment. New protectionist measures and trade tensions fuel uncertainty in the international commodity and financial markets. Also, global oil price has been volatile and its future movements remain unpredictable due to numerous factors on both supply and demand side. The normalisation of monetary policies of leading central banks, the Fed and the ECB, will be slower than expected due to the slowdown in global economic growth and inflation. It remains uncertain, however, to what extent the normalisation would diverge from market expectations, which might trigger volatility in global capital flows.

The Executive Board points out that the resilience of our economy to potential adverse effects from the international environment has increased owing to reduced internal and external imbalances and favourable macroeconomic prospects. As in the previous two years, public finances recorded a surplus in the first four months of this year and the current account deficit was fully covered by the net inflow of foreign direct investment. The Executive Board expects that economic growth this year will be led by domestic demand, i.e. investment and consumption, and that foreign direct investment, which supports the expansion of our production and export capacities, will lead to the gradual narrowing of external imbalances in the medium term.

The next rate-setting meeting will be held on 11 July.

Governor’s Office