A Change Monetary Policy Likely Later In The Year - Franks

"It is the sovereign decision of the National Bank whether they should raise the rate or not, but I would say that in terms of making the decision on raising the rate, what we need to look at is not what's going on with the current inflation, but what we are expecting to happen with inflation in 12 to 18 months down the road, because monetary policy takes a while to take effect, So, the National Bank needs to look at its models, what inflation is forecast to do in 2012, and on that basis make a decision," Franks said.

According to analysts, the central bank will most likely decide to keep the main lending rate at 6.25% per year.

"I think that a change in the policy is probably something that would have to be made later in the year, maybe not necessarily in this particular meeting (the upcoming central bank meeting)," Franks said.

IMF acting managing director and chair John Lipsky said Tuesday that inflationary pressures have been stronger than expected, under global food and fuel price shocks.

"The authorities have appropriately announced a change in the monetary policy stance towards a tightening bias. Early policy action could be needed to ensure that inflationary expectations and second round effects are well contained," Lipsky said.

Early-May, the central bank decided to maintain the key rate at 6.25% a year, for the eighth consecutive meeting, and minimum required reserves for banks were maintained as well.

At the same time, the central bank revised upwards the inflation forecast for 2011, to 5.1%, from 3.6%, sensibly above the 2%-4% target. The central bank also increased the inflation forecast for 2012, to 3.6%, from 3.2%. For both years, the central bank set an inflation target of 3%, plus/minus one percentage point.

The new inflation forecast for this year shows that the inflation target might be overshot for the fifth year in a row.

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