Monetary Review of the Republic of Tajikistan

for January-July 2006

The inflation in July was 0,9 percent and from the beginning of the year 7,5 percent. At
the same time, moderate domestic production growth, volatility of the world market prices and
growth of domestic demand remained. Given these, the National bank of Tajikistan (NBT) is
preventing further inflation risk by slightly restraining monetary policy.

During January– July, the main operational target of monetary policy - reserve money
was mainly kept within the lower range of the monetary program (Diagram). This assisted to
achieve core inflation of 2,4* percent from the beginning of the year that remained comes to
the limited number of food items comprising 52 percent of inflation (Table). The effect of
seasonal budget expenditure, which stimulated the growth of reserve money was reduced by sales
of NBT’s certificates of deposit exceeding daily average amounts of SM 2,0 mln.
On supply side, growth of agricultural production, was volatile in January-July and
has increased by 8,2 percent, while production of potatoes and grain in July reduced by 8,3 and
9,0 percents respectively. Inspite of low agricultural crops, GDP growth reached a relatively high
rate of 7,2 percent in January-July.
On the demand side, the purchasing power of the population grew at a high rate. For
instance, wages for the first six months compared with same period last year increased by 24,2
percent. Another component of demand is the construction and housing sector, which is growing
rapidly using mainly imported goods. Imports dominate in most of the market segments,
resulting in growth of the negative trade balance, which in January-July of 2006 totaled US$
158,8 mln. The deficit has become one of the main factors behind exchange rate
depreciation. Another influencing factor to the Somoni rate is higher preference of US dollar
than other currencies in foreign trade transactions, as well in remittances. This process was
stimulated by 8 percent depreciation of US dollar to Euro in the world market. In this
circumstances, the rate of the somoni to the US Dollar depreciated by 4.8 percent in January-July.
The financial and banking system continued to develop. The total assets of banks,
credit institutions and other financial non-banking organizations increased from 22,2 percent of
GDP to 26,4 percent during January-June, indicating that the role of this sector in the economy
is constantly growing. Deposits being an important source of domestic investment at the
same period increased by 28,8 percent.
The imbalance between production growth and domestic consumption, seasonality of
budget expenditure and unstable world market prices influence the inflation rate. Consequently,
the NBT will slightly restrained monetary policy, sterilizing any excessive liquidity and
increasing the refinancing rate from 8,5 to 9,0 percent.

*
Excluding price increase for potatoes, carrots, onions and transport services.
 -2-
Diagram. Reserve Money
for January – July, 2006
(in mln. somoni)

350,0

330,0

310,0

290,0

270,0

250,0

230,0
10-Feb-06

20-Feb-06

1-May-06

11-May-06

21-May-06

31-May-06
1-Jan-06

2-Mar-06

12-Mar-06

22-Mar-06

1-Apr-06
11-Jan-06

21-Jan-06

31-Jan-06

11-Apr-06

21-Apr-06

10-Jun-06

20-Jun-06

30-Jun-06

10-Jul-06

20-Jul-06

30-Jul-06
Actual Program Lower range Upper range

Table. Calculation of Core inflation for January – July, 2006.

(in percent)

Weight in Change
Price (in %)
№ Name the CPI’s
change
basket

1 Total inflation 7,5

2 Potato 24,9 2,9 0,7

3 Carrot 246,9 1,1 2,7
4 Onion 25,3 1,9 0,5
5 Transport services 40,0 2,9 1,2
6 Price growth due to the items 2-5
5,1
(6=2+3+4+5)

7 Core Inflation (7=1-6) 2,4