At a meeting on December 15, 2022, the Board of the Central Bank decided to keep the policy rate unchanged at 15 percent per annum.

Despite the stabilization of prices for basic food products and energy resources observed on the world market, there is still pressure on prices in the domestic market. Inflation expectations of the population, headline inflation which has not changed significantly over the past 3-4 months, as well as the increasing dynamic of core inflation, require maintaining “moderately tight” monetary conditions in the economy.

The monetary conditions that will be formed on the basis of today’s policy rate decision will create the basis for reducing inflation to the forecasted level next year.

Inflation and inflation expectations. Under the influence of internal and external economic factors affecting supply and demand in consumer markets, the pressure on prices remains high.

In November, the annual inflation rate amounted to 12.3 percent. In the structure of headline inflation, prices of food products rose
by 16 percent, and prices for non-food products and services increased by 10.7 percent and 7.8 percent, respectively.

As of November, inflation expectations of the individuals for the next 12 months amounted to 15.3 percent, while business expectations were equal to 14.3 percent, remaining at the level of previous months.

Annual core inflation in November also accelerated to 13.4 percent, and its contribution to overall inflation rose to 10.1 percentage points.

Internal economic conditions. In the context of an expansionary fiscal policy, a significant growth in foreign economic operations and increased volume of loans to the economy, economic activity remains stable.

In particular, according to the results of the survey of enterprises of the real sector conducted in November, the index of economic activity amounted to 51.1 points.

In January-November 2022 banks issued 21.7 percent more loans, including 1.6 times more loans to the households as compared to the same period of the previous year.

Raising pensions and wages, as well as a growth of the volume of cross-border remittances, in turn, led to a 32.5 percent increase of cash receipts in trade and paid services compared to the corresponding period of the previous year.

Overall, leading indicators of economic activity, without regard to the negative supply-side effects, suggest that economic growth in Q4 will also amount to about 5.5 percent.

There is still a high level of uncertainty in the external economic conditions. In particular, despite stabilization of the world prices for basic food products and energy resources, there are risks and uncertainty regarding their further dynamics.

In terms of the foreign trade in January-October of the current year, both export earnings and import payments were observed to have upward trends.

Export (excluding gold exports) and import volumes increased by 23.3 percent and 21.2 percent, respectively, and the volume of cross-border remittances rose by 2.2 times. Also, during this period a positive gap between the purchase and sale of foreign currency to the population amounted to 2.8 billion dollars.

The situation observed in foreign economic relations balanced the domestic foreign exchange market and positively influenced the stability of the national currency exchange rate, and the exchange rate of the soum against the US dollar depreciated by 3.5 percent compared to the beginning of the year.

Monetary conditions. Keeping the policy rate unchanged in August-November of this year and the expected downward trend in inflation next year served to ensure “moderately tight” conditions in the economy.

The weighted average interest rates in the interbank money market in November amounted to 14.1 percent, and the UZONIA index had marginal fluctuations, forming completely within the interest rate corridor.

There was a slight decrease in weighted average interest rates on term deposits in national currency, which amounted to 20.7 percent for individuals and 16.7 percent for legal entities in October.

Positive real interest rates in the deposit market are one of the main factors behind the significant growth (1.6 times) of the volume of term deposits in national currency over the last 11 months of this year.

Risks and uncertainties. Problems with fuel supply may adversely affect prices of goods and services due to increased transportation and logistics costs.

Amid high rates of income growth, including remittances to the country, rapid pace of growth in the volume of aggregate demand in the economy, there is a possibility of increasing inflationary pressure, given certain disruptions in the aggregate supply.

Along with this, the remaining risks associated with global economic activity and a possible recession will put a downward pressure on external demand in the coming year. Persisting geopolitical tensions may lead to an increase in the “risk premium” for our country in the external financial markets. These factors increase the risk of reduced external financing opportunities amid a tightening of global financial conditions.

In such a situation, efficient use of domestic financial resources and reduction of the overall fiscal deficit will mitigate external influences.

In turn, the upward dynamics of core inflation and its increasing contribution to headline inflation signals that inflationary pressure in the domestic economy will last for a longer time.

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

The next meeting of the Central Bank Board to review the policy rate is scheduled for January 26, 2023.