According to a decision released yesterday by the Monetary Policy Committee (PPK), the central bank’s overnight borrowing rates will remain at 6.50 percent after the world’s largest rate cutting cycle in 2009 -- which brought interest rates down from over 13 percent to 6.50 percent by the end of the year.
According to the bank, the decision was made in light of a “moderate recovery in economic activity,” while stating that uncertainties remain regarding external demand. “It will take a while before capacity utilization rates return to pre-crisis levels,” said the press release on the bank’s Web site. Citing high and persistent unemployment, the release noted that “resource utilization is expected to stay at low levels for some time.”
Regarding inflation, one of the many macroeconomic variables of interest for the central bank, the bank stated that tax hikes at the beginning of the year and food price increases along with base effects would lead to a “significant” rise in inflation in February and hover around the annual target for some time. The bank set the annual inflation target in January at between 5.5 and 8.3 percent with a midpoint of 6.9 percent.
Core inflation, or inflation which excludes items that may have volatile price movements such as energy or food, will increase until midyear, but is expected to remain below the target throughout the rest of the year, according to the bank. “Inflation will display a declining trend once the temporary factors taper off,” it added.
“Credit markets have continued to improve in response to the monetary easing and improvements in global risk perceptions. However, lingering problems across the global economy are not resolved completely, and there are still uncertainties regarding the strength of the recovery,” the release said, noting that it would be necessary to keep policy rates at low levels “for a long period of time.”
