AKIPRESS.COM - Exchange rate flexibility is an important buffer against external shocks.
After a prolonged period of stability, the som depreciated by 19 percent against the US dollar since March 2020, according to the IMF statement following a remote mission from March 12 to March 30 in the context of the 2021 Article IV consultation with the Kyrgyz Republic.
The NBKR balanced the use of macroprudential tools and FX interventions to maintain financial stability and avoid excessive swings in the exchange rate. Going forward, the exchange rate should remain market-driven while FX interventions are used to smooth excessive volatility.
However, the exchange rate alone cannot address the underlying structural weaknesses of the balance of payments, which require deep structural reforms to improve competitiveness of the economy.
The NBKR intends to move to inflation targeting in the medium term. For a smooth transition, it would be important to strengthen autonomy, the governance structure, and recapitalization rules of the NBKR, further build its analytical capacity, support development of money markets including by gradually phasing out the transitional arrangement of interest rate caps, strengthen the bank resolution framework, and improve communication. Once recovery takes hold, the NBKR intends to gradually reduce its non-core operations, which will strengthen monetary transmission. The NBKR is also developing a medium-term plan to unwind its ownership in Keremet Bank and the Guarantee Fund.