Central Bank raises key rate to 14% amid inflation concerns 

The Central Bank has raised the key rate by 0.5 percentage points, bringing it to an annual level of 14%.

This adjustment aims to address anticipated inflationary risks in the coming months, curb inflation expectations, and create conditions sufficient to achieve the medium-term inflation target of 5%.

Since the start of 2025, overall inflation has seen a slight uptick, reaching an annual rate of 10.1% by the end of February.

“This trend has been driven by price increases in certain goods and services. Notably, rising fuel prices, utility rates, transportation, education, and medical service tariffs have contributed to heightened inflation expectations. In February, the public’s inflation expectations stood at 15.3%, while those of businesses reached 13.8%,” the Central Bank explained in its statement.

In recent months, elevated service-sector inflation has been attributed to robust aggregate demand factors within the economy, including growing cross-border money transfers and increased lending to the population. This, in turn, is reflected in the dynamics of retail trade turnover and revenues from paid services.

Since the beginning of the year, the strengthening of currencies of key trading partners has led to a downward trend in the real effective exchange rate, bringing it closer to its medium-term trajectory.

To stabilize inflationary processes in the economy and maintain a balance between aggregate demand and supply, a tighter monetary policy stance is deemed necessary.

Considering these factors, the Central Bank’s Board decided to raise the key rate by 0.5 percentage points to 14% annually, with the goal of ensuring price stability over the medium term.

“Tightening monetary conditions will help balance aggregate demand and mitigate the impact of price-increasing factors. This is expected to slow inflationary processes to some extent in the coming quarters, paving the way for overall inflation to decline to 7-8% by year-end.

“The Central Bank remains committed to maintaining sufficiently stringent monetary conditions to bring inflation down to its 5% target over the medium term. Should risks or conditions emerge in the coming quarters suggesting stronger-than-expected pressure from aggregate demand or price increases, the tightness of monetary policy will be reassessed,” the statement read.

The next meeting of the Central Bank’s Board to review the key interest rate is scheduled for April 24, 2025.

For information, historically, the lowest rate was 9%, effective from January 2015 to May 2017, while the highest was recorded in 1995 at 300%.