The Board of the Central Bank of the Republic of Uzbekistan at the meeting held on October 27, 2022, left the main rate unchanged at 15% per annum.

Although there has been a slight slowdown in weekly price growth since September of this year, annual inflation rates remain high. Despite the fact that inflationary expectations in the economy have gradually decreased since July, the dynamics of core inflation has an upward trend.

Inflationary risks related to uncertainties in the external economic environment, global inflationary processes, high domestic economic activity and the increasing effect of seasonality on consumer prices remain until the end of the year. Taking into account these risks, it was decided to keep the policy rate at 15 percent per annum.

Inflation and inflation expectations. The impact of external and internal factors on different scales caused annual inflation to reach
12.2 percent in September of this year.

The inflationary processes observed in the country during April-September this year were broad-based, as there was a significant increase in the prices of most goods and services in the consumer basket.

Since August, the core inflation began to form higher than the headline inflation and accelerated to 12.7 percent annually in September. On the one hand, an increase in core inflation is being influenced by imported inflation, and on the other hand, the high domestic demand formed in the previous period is putting significant pressure.

In September inflationary expectations of the households and business entities amounted to 15.2 percent and 13.8 percent, respectively. The growing price dynamics of basic food products and the fact that fruits and vegetables inflation did not slow down during summer months as in previous years remain the factors of high inflationary expectations in the economy.

In the context of current inflationary processes, monetary conditions, persistence of the impact of imported inflation and high uncertainties inflation rate at the end of the year is forecasted to be around 12-12.5 percent and to decrease to 8.5-9.5 percent in 2023 in a baseline scenario.

Internal economic conditions. Acceleration of economic activity has been observed since the second quarter of the year. Real GDP growth at the end of September of this year amounted to 5.8 percent. Meanwhile, the growth rates of construction and retail trade sectors were higher compared to the corresponding period of the previous year.

The raise of the amount of monthly wages in the government sector and pensions, as well as allocated social transfers created the basis for a growth in real incomes of the population by 10.7 percent.

Consumer demand is also rising in proportion to the increase in incomes of the population, that is reflected in the volume of consumer goods production and retail trade turnover. In particular, in the last 9 months of this year, the volume of production of consumer goods in the economy increased by 27 percent, and the retail trade turnover grew by 10.8 percent.

Budget spending, high growth rates in remittances and loans to the economy will continue to support gross consumption and economic activity until the end of the year.

Taking into account the current trends in economic activity and measures on financing, the projections on economic growth until the end of this year have been revised upward. Real growth of Gross domestic product at the end of the current year is expected to be within the forecast corridor of 5.2-5.8 percent (the previous forecast was 5-5.5 percent).

Given possible risks and uncertainties in external conditions, under the baseline scenario the economic growth rate for 2023 is predicted to amount to 4.5-5 percent, slightly slower than the current year.

External economic conditions. In the third quarter of this year, global inflation continues to grow in the context of price increase in basic food products, raw materials and energy resources in the world markets.

In order to curb the inflationary processes, most of the central banks are tightening monetary policies and, accordingly, the cost of financial resources is increasing. In particular, due to tightening of monetary conditions by the US Federal Reserve Bank, most of the world’s currencies are depreciating against the US dollar. The dollar index amounted to 112 points having risen by 17 percent compared to the beginning of the year.

This leads to the acceleration of inflationary processes in countries with a high share of imports in consumption and whose inflationary expectations are highly influenced by the exchange rate.

Due to the adjustment of foreign economic relations to changes in the external situation including trade partners, positive trends are being observed in the volume of currency flows to our country.

In particular, in the last 9 months of this year, exports without gold increased by 23.6 percent compared to the corresponding period of the previous year amounting to 11.1 billion dollars, the volume of remittances to our country amounted to 12.6 billion dollars having grown by 2.2 times, the positive gap of 2.5 billion dollars was formed between the purchase and sale of currency by banks to the population.

Monetary conditions. The situation in the money market and the interest rates are adapting to the changes in monetary conditions. In September, the “UZONIA” rate was formed within the range of 14-14.5 percent during the month, while the yield on government securities was around 16-18 percent, depending on the maturity.

The positive real interest rates on deposit serve to raise the activity of savings of the population in the national currency. In particular, during the last period of this year, term deposits of the population in national currency have increased by 1.5 times.

Although there are positive changes in the dynamics of inflation and inflationary expectations, the fact that external risks and uncertainties remain high requires maintaining a cautious approach to changing monetary policy in the future.

Inflationary factors and risks caused by external and internal economic conditions will be carefully analyzed and appropriate measures will be taken to eliminate them.

The next meeting of the Central Bank Board to review the policy rate is scheduled for December 15, 2022.