Developments in the real exchange rate and competitiveness in 2002-2003

Although the Som has appreciated against the US dollar, it has been quite stable against the currencies of the Kyrgyz Republic’s main trade partners. Together with sound macroeconomic economic policies that have sustained low inflation, this has lead to the stability of the real exchange rate of the Som vis-à-vis a basket with equal weights of the US dollar, Euro, Tenge and Ruble Also it has further improved competitiveness.

The Som has appreciated by 7.1 percent against the dollar since December 2002, this largely reflects movements of the dollar against other main currencies. Against the Euro the Som has depreciated by 5.5 percent over this period. The exchange rates against the neighboring countries have apprecaited modestly, although the Som appreciated against the Ruble by almost 8 percent in March-June 2003.

Inflation is lower in the Kyrgyz Republic than in its main trade partners, Kazakhstan, Russia, and Uzbekistan. As shown in Figure ?? below the annual percentage change of consumer price index in the Kyrgyz Republic has been about 10 percentage points below that of Russia, 20 points below that of Uzbekistan and somewhat below that of Kazakhstan in June 2003.
The CPI-based real exchange rate against Kazakhstan, USA, Russia appreciated, while it depreciated against curb market rate in Uzbekistan and the EURO. The real exchange rate against a basket of those curencies was almost stable over 2002, and appreciated by 7.4 percent in the first half of 2003.

The competitiveness in 2002-2003 improved vis-à-vis Kazakhstan, Russia, USA, and Euro area, and it has weakened recently vis-à-vis Uzbekistan (using curb market data). Broadly stable nominal exchange rates against main trading partners, combined with lower inflation help to sustain competitiveness. Adequacy in competitiveness was reflected in strong export performance in 2002.

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