Central Bank Cuts Interest Rate to 36%

The Central Bank’s Monetary Policy Committee (MPC) decided to reduce the one-week repo auction rate, the policy rate, from 37% to 36%. The Committee also lowered the overnight lending rate from 40% to 39% and the overnight borrowing rate from 35.5% to 34.5%.

In its statement, the MPC said: “Despite monthly fluctuations, recent inflation figures and leading indicators confirm a decline in the underlying trend. Data on economic activity and the limited pass-through of supply shocks to domestic prices indicate that weak domestic demand continues. On the other hand, upward risks to the inflation outlook arising from high energy prices persist as geopolitical tensions remain elevated. The effects of geopolitical developments on the inflation outlook through the cost channel, economic activity and expectations are being closely monitored.”

“TIGHT MONETARY POLICY WILL CONTINUE UNTIL PRICE STABILITY IS ACHIEVED”

The MPC statement continued: “The tight monetary policy stance, which will be maintained until price stability is achieved, will strengthen the disinflation process through the demand, exchange rate and expectations channels.

“The Committee will determine future steps regarding the policy rate in line with interim targets, taking into account actual inflation figures, the underlying trend and expectations, and ensuring the degree of tightness required for disinflation. The size and timing of these steps will be determined on a meeting-by-meeting basis, guided by the inflation outlook and following a cautious approach.

“If there is a significant and lasting deterioration in the inflation outlook, the monetary policy stance will be tightened. The Committee has reiterated its cautious stance against upside risks to inflation.”

ALL AVAILABLE TOOLS TO BE USED EFFECTIVELY

The Central Bank announced that, should developments in credit and deposit markets deviate from expectations, the monetary transmission mechanism would be supported by additional macroprudential measures. It also said it would continue to closely monitor liquidity conditions and use liquidity management tools effectively.

INFLATION TARGET SET AT 5%

The Committee stated that it would formulate monetary policy decisions to ensure monetary and financial conditions conducive to bringing inflation down to the 5% target over the medium term. It added that decisions would be taken within a predictable, data-driven and transparent framework.