Kyrgyzstan raises rates again after lull

The National Bank of the Kyrgyz Republic decided to raise the policy rate by 50 basis points to 8% on November 29. This marks the fourth rate hike of 2021, but the first since July.

The central bank has raised the benchmark rate by 300bp over the course of 2021, and 425bp since early 2020.

The NBKR cited high inflation in making its decision. According to its figures, year-on-year inflation reached 12.1% in November 2021, and prices have risen 9.5% since January.  Though figures also show inflation has declined since mid-2021, the rate is well above the central bank’s  inflation target band of 5–7%.

Roman Mogilevskii, co-ordinator of the Institute of Public Policy and Administration at the University of Central Asia in Kyrgyzstan, told Central Banking that inflation “is mostly due to the external environment”.

He characterised the central bank as making “some, relatively minor contribution… to the inflation deceleration”, notably reducing the rate of growth in the money supply. This grew by 7% between September 2020 and September 2021, down from 28% in the previous 12-month period.

Iliias Mamadiiarov, a research associate at the French Institute for Central Asian Studies in Bishkek, said there were “major limitations” to the NBKR’s policy. Local capital markets are not very liquid, and many financial firms borrow overseas, adding to imported inflation, he said.

“I think it’s near to impossible for NBRK to reach the target 5–7% with monetary intervention policy alone,” Mamadiiarov said. “Other policy measures must be put in place to reach that level and much will have to do with the political will of the government.”

Mogilevskii noted inflation was falling – it was 14.6% at its June 2021 peak. However, it was falling more slowly than he had expected earlier this year, and likely would not reach single digits until next year.

Policy-makers attributed high inflation to rising global prices for food and energy, and higher domestic prices for utilities and other regulated goods.

The central bank said that the Kyrgyzstani economy had grown by 1.6% since January, in real GDP terms. However, this would not be sufficient to compensate for losses in 2020, when the economy shrank 8.6%, according to the 2021 International Monetary Fund Article IV report.

Similar inflationary pressures have buffeted other economies in the former Soviet Union, most notably Russia. The Bank of Russia has raised its policy rate six times this year, most recently in October. Russia’s policy rate is currently 7.5%, up from 4.25% at the start of the year.

Kyrgyzstan has exprienced chronic political instability. Popular uprisings have forced the resignation of three presidents since 2005, most recently Sooronbay Jeenbekov in October 2020. Protesters accused Jeenbekov’s government of rigging parliamentary elections.

Parliament approved the appointment of a new NBKR governor, Kubanychbek Bokontaev, on September 29.