The Operational Monetary Policy Committee of the National Bank has chosen to maintain the current interest rates amidst a notable deceleration in inflation and favorable conditions in the foreign exchange market. Despite these positives, lingering risks persist.

In a released statement, the National Bank affirmed that the interest rates for CB bills remain steady at 6.30%, while the overnight and seven-day loan interest rates remain fixed at 4.20% and 4.25% respectively. The supply of CB bills at regular auctions remains unchanged at Mden 10 billion. The Bank believes that retaining the current interest rates, coupled with adjustments in reserve requirements and prior macroprudential measures starting December 2023, will aid in further curbing inflation and maintaining exchange rate stability.

This decision hinges on an assessment of key indicators for monetary policy. November 2023 witnessed a drop in domestic inflation to 3.1% annually. This decline is attributed to reduced pressure in food and energy prices, as well as slower price increments in less volatile categories, aligning with the instituted monetary measures.

Moreover, the national inflation rate’s significant slowdown compared to the Eurozone has minimized the disparity in inflation. Consumer inflation expectations from November’s European Commission surveys appear more moderate. Nonetheless, the average inflation rate remains relatively high historically, signaling existing risks in price dynamics, compounded by uncertainties in global stock market prices and certain domestic factors. Thus, cautious approaches, especially concerning policies impacting the economy’s demand side, are deemed necessary.

The European Central Bank (ECB) has opted to maintain its interest rates in the latest December session, foreseeing a continued slowdown in inflation in the upcoming year, targeting medium-term inflation goals by 2025.

While recent macroeconomic indicators align closely with expectations, the uncertain conditions surrounding monetary policy necessitate vigilant monitoring of inflation dynamics and expectations. Consequently, a prudent approach in executing both monetary and macroeconomic policies impacting economic demand is advised.

The National Bank remains vigilant, continuously monitoring macroeconomic data and associated risks, ready to employ necessary instruments and measures to sustain exchange rate stability, stabilize inflation expectations, and ensure medium-term price stability.