The Board of the Central Bank of the Republic of Uzbekistan decided to keep the policy rate unchanged at 14 percent per annum. This rate has been maintained for 9 months since March 17 this year.

Although inflation in the economy has been decelerating, there is still uncertainty regarding the persistency of this trend.

Given strong aggregate demand, in order to bring the inflation down to the 5 percent target by 2025 relatively tight monetary conditions are to be maintained.

Having been decreasing in October-November, the annual inflation rate amounted to 8.8%. This decline is mainly attributed to the effect of the last year’s high base, a reduction in the upward contribution of import prices, still non-exhaustive manifestation of the effects of the increase in electricity tariffs for legal entities, as well as continued relatively tight monetary conditions.

According to forecasts under the baseline scenario, the inflation rate is expected to be in the range of 8-9% in 2024. Meanwhile, the effects of external pro-inflationary risks such as existing non-market restrictions and fragmentation in international trade, as well as the next expected adjustments in regulated prices are likely to manifest in the next quarters.

Although core inflation had a descending trend since the beginning of the year and amounted to 9% in November, there is still upward pressure from some goods. It takes a certain period of time to reach a persistent downtrend.

Inflation expectations of households and businesses have persisted higher than the actual inflation rate, around 13-14%.

Slower deceleration of global inflation, high volatility in global economic sentiment and world commodity prices raise expectations that external financial conditions, especially, the cost terms on external resources, will remain tight in the upcoming quarters.

Economic activity is mainly driven by strong aggregate consumer demand and private investment growth. Consumer demand is largely supported by government spending and retail lending. Services sector, accounting for about half of GDP growth, remains a supply-side driver of economic growth. Continued positive dynamics of wage and real income growth will support consumer activity in the future.

The above-mentioned factors indicate that there are still risks to the persistence of downward dynamics observed in inflation.

Given the current conditions, in order to achieve the inflation target, the Central Bank Board decided to further maintain a relatively tight monetary policy.

Keeping the policy rate unchanged whilst inflation slows down allows to maintain moderate real interest rates in the money market. This, in turn, along with balancing credit growth, serves to maintain the current dynamics of savings activity, as well as increases the scope for a wider use of domestic financial resources in the context of rising costs of external financing.

In the conditions of high real interest rates on deposits in the national currency, the volume of bank deposits is expected to further grow at a rapid pace.

In the future, the objective of achieving long-term price stability will largely depend on the pace of budget consolidation and implementation of market principles in the economy.

The Central Bank will continue creating the monetary conditions aimed at reducing inflation and further intensify macroprudential measures, as well as appropriately adjust the policy rate taking into account updated inflation forecasts and expectations.

The next meeting of the Central Bank Board to review the policy rate is scheduled for January 25, 2023.

Source: The press release of the Central Bank of the Republic of Uzbekistan