Central Bank: Inflation Outlook Has Not Displayed Desirable Improvement Yet

- The Monetary Policy Committee (MPC) of Central Bank declared “the desirable improvement” has not been displayed in the inflation Outlook yet, having suggested “a slightly tighter monetary policy may be considered”.

Within the minutes of the MPC meeting, where interest rates had been pegged last week, MPC noted, “Although processed food and energy price developments affect inflation favourably in the short run, the cumulative exchange rate movements since early 2015 delay the recovery in the core inflation trend. Against this backdrop, the Committee stated that a slightly tighter monetary policy stance might be necessary to counterbalance the upside risks to inflation."

While the records stressed the inflation outlook and potential risks were treated when the Committee decided the monetary tightening to be made, they highlighted that due to the imminent economic slowdown, exchange rate pass-through to domestic prices would be more limited than implied by historical estimations.

“Moreover, falling commodity prices partly offset the exchange rate effect. Meanwhile, downside risks to global economy and domestic economic activity remain significant. Accordingly, the Committee agreed to adopt a flexible approach for the implementation of the monetary tightening at this point and follow the consequences closely to review the situation at the next meeting. In conclusion, given the uncertainty over domestic and global markets and the volatility in energy and food prices, the Committee decided to implement a tighter liquidity policy for as long as deemed necessary” added the MPC minutes.

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