Central Bank lowers key rate to 13.5 percent amid declining inflation

The Central Bank's board decided at its meeting on July 25 to lower the key rate by 0.5 percentage points, setting it at 13.5 percent annually, according to the regulator's press service.

It is noted that the decline in core inflation and the dynamics of inflation expectations indicate that the secondary impact of rising energy tariffs on inflation is lower than expected, increasing confidence that inflation will form at the lower end of the forecast corridor by the end of the year.

Relatively tight monetary conditions are contributing to the reduction of the positive output gap and the decrease in inflationary pressure from the demand side.

Taking into account the expected dynamics of inflation and the reduced risks of inflationary pressures, the Central Bank's board decided to lower the key rate by 0.5 percentage points, setting it at 13.5 percent annually.

In June, overall inflation formed at an annual rate of 10.6 percent, with significant decreases observed in the stable components of inflation and in fruit and vegetable prices. Price dynamics in external markets continue to exert a lowering effect on import inflation, the report said.

Additionally, the decline in food inflation and the stability of the exchange rate positively affected the inflation expectations of the population, leading to a significant decrease in June. This, in turn, creates conditions for reducing inflationary pressures from expectations.

The downward trend in core inflation continued, reaching 5.9 percent in June, down 2.6 percentage points since the beginning of the year. This is explained by the secondary impact of changes in energy tariffs being lower than expected, indicating that the downward trend in inflation will continue in the future.