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2008 Inflation Control and Required Measures

2008 Inflation Control and Required Measures. National Bank of the Kyrgyz Republic June 2008. Inflation and core inflation since 2008. Inflation dynamics. CPI by NSC. Core inflation. Overall inflation (NSC). Inflation statistics. Statistics and forecasts (I). 115%. 110%. 115%.

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2008 Inflation Control and Required Measures

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  1. 2008 Inflation Control and Required Measures National Bank of the Kyrgyz Republic June 2008

  2. Inflation and core inflation since 2008 Inflation dynamics CPI by NSC Core inflation Overall inflation (NSC)

  3. Inflation statistics

  4. Statistics and forecasts (I) 115% 110% 115% 105%

  5. Statistics and forecasts (II) 110% 115%

  6. Outlooks… • Increase of the tariffs for heating and electricity is expected • Producers' prices are expected to increase after increase in tariffs of the natural monopolies and in prices for intermediate goods.

  7. Measures undertaken by NBKR: Jan.-May 2008 • NBKR bills: 5.01 bln. som (compare to 261.0 mln. som for the same period of 2007) • Net salesat inter-bank foreign exchange market: 67.2 mln. USD or 2.31 bln. som (compare to 54.1 mln. USD or 2.0 bln. som for the same period of 2007)

  8. NBKR: OPEN MARKET OPERATIONS, mln. som

  9. Monetary base contraction… …due to tightening monetary policy January-May 2008: • it has been reduced by 1047.4 mln. soms due to NBKR operations; • but it has been increased by 39.3 mln.soms due to Government operations

  10. However… Taking into account non-monetary nature of the recent inflation, using just monetary measures to contain it … • might be less effective, or/and • associated with high costs

  11. Next actions by the NBRK • To continue to pursue a rigid monetary policy; • To maintain the floating exchange rate; • Surplus liquidity sterilization

  12. Next actions by the Government Strategic measures • Structural reforms to transform the consumption-based economy to investment-oriented activity; • Development of the environment promoting the domestic market saturation

  13. Next actions by the Government Operational measures • To subsidize costs of suppliers/producers of oil products and foodstuffs (grain, flour, vegetable oil, sugar) and agricultural produce and… • To introduce protective measures against export of subsidized products.

  14. Next actions by the Government(2) Cost of subsidies’ granting Granting of subsidies assumes additional expenses from the state budget. The Government will have to: • Either find additional sources of funding for such expenses, • Or refuse a part of expenditures already built in the budget for subsidies’ financing.

  15. Next actions by the Government(3) Operational measures Support of monetary and credit policy through fiscal policy implementation: • Stable and even state budget spending in the course of the financial year, • Renunciation from the practice of funding delays of some budget expenditure items and momentary pouring down of funds at the end of the year.

  16. Next actions by the Government(4) Operational measures • Antimonopoly regulation of the domestic market and strengthening of accountability of local state administrations (a drastic price inflation in regions very often has a speculative character).

  17. Problems encountered in the present inflation control plan • Not all the plan goals are consistent with the overall objective. Under current conditions the inflation control and maintenance of the real GDP growth at the rate of 8-9%%, are rather conflicting goals; • A new edition of the Tax Code has not been adopted yet, and in overall, the tax policy improvement efforts aimed at the shadow economy scaling down have not been finalized

  18. Problems encountered in the present inflation control plan (2) • There are delays in the Food Security Strategy adoption along with development of the Effective Owners’ Creation in Agriculture, Action Plan for Land Market Development. Плана мероприятий по снятию препятствий в развитии рынка земли. Problems related to the financial leasing remain unsolved. • There is lack of confidence as regards secure blocking of the smuggled goods exportation channels.

  19. It should be realized that … • restrictive or prohibitivemeasures may be applied for limited time only. Being effective as problem-solving measures at the current stage they may become risky in generating complications in the medium-term prospect. Longer such measures will be in effect higher risks may come out.

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