Tajikistan's CB lowers policy rate in a surprise move

CAUCASUS / CENTRAL ASIA - In Brief 12 Feb 2024 by Ivan Tchakarov

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The Central Bank of Tajikistan lowered the policy rate by 50bpts to 9.50%. This is the first change since May last year when the policy rate was decreased by 100bpts to 11.0 percent. The accompanying statement (only in Tajik) consisted of a single paragraph arguing that the decision has been taken on the basis of normalizing domestic and global commodity prices, and elevated levels of global risks. We find the decision somewhat unexpected despite the fact that price growth is still running within the 6 percent CPI target. Inflation has indeed been decelerating for the last three years or so, chiefly as a result of food prices, which account for an outsize 50.6 percent of the CPI basket (Graph 1). Headline CPI bottomed at 2.3 percent YoY in the summer of 2023 before inching up gradually to finish the year at 3.8 percent YoY. Even if that level of inflation appears comfortably below the 6.0 percent CPI target, the underlying macroeconomic momentum, characterized by an economy that posted an impressive 8.3 percent GDP growth last year, is clearly pointing to upside risks to prices. What is particular intriguing is that the central bank itself is forecasting (again only in Tajik) in its baseline scenario that inflation will speed up to 6.0 percent by the end of this year and further to 9.0 percent by the end of 2025. This is consistent with our own view that inflation will find support from the continuing robust growth, heavy projected increases in public sector and military wages (President Emomali Rahmon signed a decree on Jan 9th to raise them by 40 percent), and lower base. Of course, CB's decision must be kept in perspective in that Tajikistan is not even de-jure runn...