As expected by economists, the National Bank kept the key interest rate at 7% on Thursday. Developments in the economy, decisions by other central banks in the region and the outlook for inflation have kept the NBR from tightening measures.

The latest data and analysis suggest a progressive slowdown in economic growth in the fourth quarter of 2022 and the first quarter of 2023, driven by the continuation of the war in Ukraine and the expansion of related sanctions, as well as a slight pick-up in GDP growth in the fourth quarter of 2022 compared to the same period the previous year based on the base effect, according to the press release of the BNR.

In the fourth quarter of 2022, annual inflation plateaued as expected, registering a much more modest increase over the entire interval than in previous quarters (from 15.88 percent in September), under inflationary pressures. the disinflationary impact of the aggregate dynamics of the exogenous components of the CPI, under the influence of a significant drop in fuel prices, motivates the NBR’s decision.

Annual adjusted CORE2 inflation rose slightly in the final months of last year compared to forecasts, rising from 11.9 percent in September to 14.6 percent in December 2022, on the back of sustained increases in food prices as well as quasi-broadcast price increases. recorded in the segment of non-food goods and services. The evolution of inflation-adjusted CORE2 continues to reflect the effects of broad-based increases in agricultural commodity prices and energy and transport costs, as well as the impact of supply chain bottlenecks. In this interval, they were also supported by high rates of short-term inflation expectations and the stability of demand in certain segments, as well as a significant share of food products and imported goods in the consumer basket.

The annual rate of inflation, calculated on the basis of the harmonized index of consumer prices (IAPC – the inflation indicator for EU member countries), rose to 14.1 percent in December 2022 from 13.4 percent in September. Meanwhile, annual average CPI and HIPC inflation increased to 13.8 percent and 12.0 percent in December 2022 from 11.8 percent and 10.2 percent respectively in September 2022, but remained lower than those prevailing in the region and in the Baltic States.

At today’s meeting, the BNR Board of Directors reviewed and approved the February 2023 Inflation Report, a document containing the latest available data and information.

The updated forecast highlights the prospect of a much sharper decline in annual inflation by the middle of next year than previously forecast, especially from the third quarter of 2023, amid the continuation of energy price cap and compensation schemes until March 31. , 2025 and redefinition of their characteristics from January 1, 2023.

Thus, annual inflation is expected to fall to single digits as early as the third quarter of this year – almost three quarters ahead of the previous forecast – and to be significantly lower than previously expected in December 2023, before decelerating markedly in the latter half of next year its decline, remaining slightly above the target range at the end of the forecast horizon.

In addition to the new configuration of energy price ceiling schemes, the expected decline in inflation has the main determinants of increasingly significant disinflationary base effects and downward adjustment of quotations of some commodities, and also affects the likely capping and closing of the aggregate demand surplus over the forecast horizon is slightly slower than in the previous forecast, which means only a slight exit of the GDP gap into negative territory by the end of next year.