Under the current monetary policy stance, inflation will decline throughout 2015 in line with the forecast presented in the Inflation Report, the Central Bank said on November 21 in a presentation to economists.

In the inflation report released in November, the Bank raised its inflation forecasts for 2014 to 8.9% from a previous 7.6% and to 6.1% from a previous 5% for 2015, but voiced optimism that inflation was expected to stabilize around 5% in the medium term.

Macroprudential measures taken at the beginning of the year and the tight monetary policy stance started to have favourable impact on the core inflation trend and declining commodity prices support disinflation, the Bank said in the presentation posted on its website. It reiterated that Inflation expectations, pricing behaviour and other factors that affect inflation will be closely monitored and the tight monetary policy stance will be maintained, by keeping a flat yield curve, until there is a significant improvement in the inflation outlook.

This week, the Central Bank kept its one-week repo rate (main rate) at 8.25%, its overnight lending rate at 11.25%, and the overnight borrowing rate at 7.50%.

Here are the other key highlights from the Central Bank’s presentation:

Inflation Outlook

* The CPI and core inflation have remained at elevated levels caused by mainly the exchange rate pass-through and to a certain extent the deterioration in inflation expectations

* The adverse impact of past exchange rate developments on annual inflation is gradually tapering off but elevated food prices have been the main obstacle to disinflation

Growth & demand conditions:

*Economic activity slowed in Q2 2014 mostly due to weak consumer confidence, investment tendency and employment prospects

*But leading indicators point to moderate growth and higher contribution from domestic demand

* The recovery in economic activity is yet to be observed in labour market indicators

External balance:

*Exports have continued to outpace imports despite the weakening global demand

* The financing quality of the current account deficit has continued to improve

* The moderate course of consumer loans and the favourable terms of trade may contribute to the improvement in the current account balance.