After reviewing current economic developments at its meeting today, the NBS Executive Board decided to raise the key policy rate by 0.5 percentage points to 9 percent.

The Executive Board has decided to tighten its monetary policy stance due to materialization of some of the risks relating to the impact of a relatively poor agricultural season on growth in food prices in the domestic and international markets, as well as expectations of a somewhat faster recovery in aggregate demand.

It has been estimated that year-on-year CPI inflation in August 2010 will move around the midpoint of the target set for that month (6.7±2%), which is higher than anticipated at the time of the August Inflation Report.

Poor agricultural season and rising international agricultural product prices fed through into considerably higher prices of domestic food, which proved to be the key driver of inflation growth over the past several months. There was barely any seasonal decline in agricultural product prices in August, while prices of processed food edged up.

Continued economic recovery, mild lending activity growth, and earlier than planned unfreezing of public sector wages and pensions are dampening the disinflationary impact of aggregate demand that has so far been pronounced.

In view of the above, the NBS Executive Board judges that the 0.5 percentage point increase in the key policy rate is needed in order to contain medium-term inflation within the set targets (4.5±1.5% for end-2011 and 4±1.5% for end-2012).

The next rate-setting meeting of the NBS Executive Board is scheduled for 14 October 2010.