Inflation indicators are likely to hover above the inflation target for some time due to the exchange rate volatility observed during the recent months, the Central Bank said in the minutes of the latest monetary policy committee (MPC) meeting. The government’s inflation target is 5% for 2013 and 2014.

Consumer prices rose 1.8% m/m in October (market consensus estimate: 1.34%), bringing the annual CPI inflation rate to 7.71% from the previous month’s 7.88%. End-year inflation expectations jumped to 7.71% in November from 7.39% in October, the Central Bank’s monthly Expectations Survey showed last week.

At the MPC meeting on November 19, the Central Bank kept its policy rate (one-week repo) unchanged at 4.5%. This was a widely expected move. Moreover, the overnight borrowing and lending rates were held constant at 3.5% and 7.75%, respectively.

The cautious monetary policy stance should be maintained until the inflation outlook is in line with the medium term targets, the Bank said in the minutes. Given the recent developments in monetary and financial conditions, monetary policy stance is just appropriate, however, caution should be exercised against developments that may worsen the inflation outlook, the Bank added.

Recent data point to moderation in final domestic demand for the third quarter while on the production side, economic activity experienced a mild slowdown during Q3, the Bank said.

The Bank also stressed that the present policy framework was contributing to the improvement in the current account balance and moderate decline in the current account deficit excluding gold trade was expected to continue.

The cautious monetary policy stance, recently announced macroprudential measures, and weak capital flows have led to a notable tightening in financial conditions, which is expected to bring down the loan growth rates to more reasonable levels in the forthcoming period, the Bank said.