An analytical review based on the official Monetary Policy Review (MPR) published by the Central Bank of the Republic of Uzbekistan for Q1 2026

Introduction

The Central Bank of the Republic of Uzbekistan has released its Monetary Policy Review for the first quarter of 2026, covering January through March. The document presents comprehensive macroeconomic data, revised forecasts, and a detailed assessment of prevailing monetary conditions. The findings confirm that Uzbekistan continues to combine strong economic expansion with a steady disinflationary trajectory, supported by an increasingly robust investment climate and resilient domestic demand.

Inflation: Sustained Deceleration, Target Within Sight

Headline inflation in March 2026 reached 7.1% year-on-year, declining by 0.2 percentage points from December 2025. Core inflation moderated to 5.7% in March — marginally below the January level.

The primary driver of disinflation was the fading of high base effects from the prior year across selected goods and services. At the component level:

Services inflation remained the most elevated sub-index, declining from 13.9% in January to 12.7% in March — a reduction of 1.2 percentage points over the quarter — yet still meaningfully above headline inflation, reflecting demand-side pressures.

Food inflation accelerated to 5.9% in January–February due to low base effects in eggs, flour, rice and sugar, before easing in March as the high base from meat products dropped out. However, the fruits and vegetables sub-group accelerated by 2.8 percentage points at the end of the quarter, with potato prices rising 9.8% month-on-month and apples 7.4%, driven in part by elevated import prices linked to geopolitical tensions in the Middle East.

Non-food inflation rose slightly to 5.3% by March (+0.2 p.p. from December), partly reflecting pressure from propane prices, which accelerated by 20 percentage points year-on-year from the start of the year, and cement prices, up 5 percentage points.

Alternative core inflation measures — the trimmed CPI and CPI median — stood at 4.1% and 3.4% respectively in March, while the share of goods and services experiencing deceleration narrowed toward quarter-end, indicating that the broad-based nature of the disinflation process has begun to plateau.

The Central Bank’s year-end 2026 inflation forecast is unchanged at 6.5%. Under the baseline scenario, inflation is projected to reach the 5% target in 2027 and stabilise at that level from 2028 onward.

Two alternative scenarios are modelled. Under the adverse scenario — assuming oil prices averaging $110 per barrel in 2026 and $125 per barrel in 2027 (34.1% above the baseline), combined with a global food price increase of 11.8% — domestic inflation could reach 7.2% by end-2026, 6.6% in 2027, and 5.1% in 2028. Under the optimistic scenario — where FDI inflows, export revenues, and remittances exceed expectations, supporting exchange rate stability — inflation could slow to 6.2% by end-2026 and 4.9% in 2027.

Inflationary Expectations: Gradual Anchoring

Inflationary expectations among the population in March 2026 stood at 11.0% for the 12-month horizon (down from 11.2% in January–February), while entrepreneurs’ expectations reached 10.7% (down from 10.8%). The gap between expectations and actual inflation remains at approximately 4 percentage points, attributable largely to the lingering impact of regulated price adjustments in recent years.

Financial sector experts surveyed by the Central Bank revised their 12-month inflation expectations down to 7.4% in March (from 7.7% in February), while medium-term expectations beyond three years held stable at 5.6% — close to the 5% target, indicating growing credibility of the Central Bank’s inflation anchor.

Entrepreneurs’ planned price increases for their own goods and services declined from an average of 11% in Q1 2025 to 9% by March 2026, signalling easing pricing pressure in the business sector.

The balance indices for both household and entrepreneur inflation expectations have displayed a steady downward trend since the second half of 2025, providing a positive signal for the medium-term disinflationary outlook.

Economic Growth: First Quarter Exceeds Projections

Real GDP growth in Q1 2026 reached 8.7% — significantly above the Central Bank’s prior forecast — confirming that the output gap remains positive and that demand-side inflationary pressures persist.

The growth was underpinned by:

Services sector: Financial services grew by 22.4% and trade services by 19.4%. Transport services also posted strong gains, driven by elevated air and rail freight volumes.

Industry: Growth in the industrial sector was led by manufacturing, particularly clothing production (+15.3%) and food processing (+8.7%).

Construction: The sector recorded growth of 15.5% in Q1 2026, supported by high investment inflows directed toward infrastructure and industrial facilities.

Real household incomes rose 7.8% in real terms in Q1. Employee income and self-employment income grew by 20.9% and 17.8% respectively, together accounting for 60.7% of total household income. Nominal wages increased 17.4% year-on-year (real: +9.5%). The number of vacancies rose 9.8% year-on-year, with construction (+48.4%) and food services (+41.7%) leading the increase.

On the basis of these results, the Central Bank revised its 2026 GDP growth forecast upward to 7.0–7.5% (from the prior projection of 6.5–7.0%). The medium-term outlook for 2027–2028 is maintained at 6–7% annually. The private consumption forecast for 2026 is held at 6.5–7.5%, while government consumption is expected to grow 2–3%.

Investment and FDI: Record Inflows

Fixed capital investment grew 29.6% in real terms year-on-year in Q1 2026. The largest share was directed toward the manufacturing sector (+28.5%) and construction (+10.8%).

Most significantly, net foreign direct investment (FDI) inflows reached $5.9 billion in Q1 2026, representing a 74.2% increase year-on-year. The FDI-to-GDP ratio rose to 16.1%, one of the strongest readings recorded in the country’s recent history.

The annual investment forecast for 2026 has been revised sharply upward to 12–16% real growth (from the prior estimate of 8–11%), reflecting the ongoing implementation of large-scale industrial, energy, and transport-logistics projects.

External Trade and Remittances

The absence of gold exports during Q1 2026 caused a decline of 29.3% in total merchandise exports by value. However, non-gold exports rose by 25.1%, and exports excluding both gold and services grew 24.0%. Chemical products were the standout category, recording growth of 44.6%.

Total imports expanded 30.9% to $12.2 billion, driven by food products (+48.3%), energy and petroleum products (+64.4%), and machinery and equipment (+30.7%). This dynamic reflects robust investment and consumption activity, while also retaining pass-through risks from global commodity prices to domestic inflation.

Cross-border remittances in Q1 2026 amounted to $3.8 billion, up 13% year-on-year, providing sustained support to household incomes and domestic consumption. The import forecast for 2026 has been revised up to 15–20%; the non-gold export forecast is maintained at 12–16%.

The real effective exchange rate (REER) strengthened slightly in March but depreciated 1.6% from the start of the year, driven primarily by nominal exchange rate movements in the first two months of 2026 and the strengthening of major trading partner currencies.

An empirical study conducted by the Central Bank confirms that a 1% nominal depreciation raises domestic inflation by approximately 0.2 percentage points over around 10 months, and that the competitiveness gains for exporters from currency depreciation are largely neutralised within one quarter by higher domestic inflation. This finding underscores the importance of structural export diversification and productivity-driven competitiveness over exchange rate management.

Fiscal Position

The state budget was executed with a surplus of 7.7 trillion soums in Q1 2026. Budget revenues grew 35% while expenditures rose 22% year-on-year, with elevated gold prices on global markets serving as a key revenue driver. For the full year, the fiscal deficit is expected to remain within the approved ceiling of 3% of GDP.

The Central Bank notes that in an environment of high economic activity, any expansion of budget expenditures financed by additional revenue would carry a pro-cyclical risk of amplifying aggregate demand and contributing to inflationary pressure.

Monetary Policy Stance: Deliberate Restraint

At its March 18, 2026 board meeting, the Central Bank kept the key policy rate unchanged. The decision reflected the persistence of inflationary pressures from demand-side factors and rising external risks.

The real key rate rose to 6.4% by end-Q1 2026, up 0.2 p.p. from the start of the year, as headline inflation declined. The UZONIA overnight rate averaged 13.7% across the quarter, remaining close to the key rate.

The banking system operated with a substantial structural liquidity surplus: the daily average surplus in Q1 stood at 55.4 trillion soums (reaching 59.2 trillion soums in March), up sharply from 31.8 trillion soums in Q4 2025. To absorb this excess, the Central Bank actively deployed its sterilisation instruments: the daily average balance of 7-day Central Bank bonds reached 48.7 trillion soums in Q1 (versus 25.5 trillion in Q4 2025), while overnight deposit balances averaged 5.1 trillion soums (versus 4.2 trillion).

Total interbank money market operations in Q1 amounted to 163 trillion soums, declining 11% from the prior quarter (184 trillion soums), with overnight transactions accounting for 89% of total volume — up 3 p.p. quarter-on-quarter.

The Central Bank is pursuing a data-driven, meeting-by-meeting approach to policy decisions, in line with the global shift away from forward guidance toward more flexible frameworks. As documented in the MPR, this adaptability is not a sign of uncertainty but a rational response to the structural unpredictability of supply shocks in the current global environment. The MPR cites the significant forecast errors of major central banks in 2021–2022 (the US Federal Reserve: 6.4 p.p. error; ECB: 7.4 p.p.; Bank of England: 3.85 p.p.) as evidence that traditional macroeconomic models require recalibration.

Monetary Conditions: Credit and Deposit Markets

Deposits in national currency grew 46.4% year-on-year to 253 trillion soums by end-Q1 2026. Household time and savings deposits rose 43%, legal entity time and savings deposits — 69%, reflecting strong savings incentives generated by elevated real returns.

The real interest rate on household time deposits in March stood at 8.5% (+0.3 p.p. from start of year), while the equivalent rate for legal entities reached 4.4% (−0.4 p.p.).

The total credit portfolio grew 15% year-on-year to 679 trillion soums — a marginal deceleration of 0.3 p.p. from Q4 2025. Household credits expanded 22.3%, while corporate credits grew 11.7%. The real lending rate for households in March was 9.8% (+0.4 p.p.), and for legal entities 10.8% (+0.1 p.p.). The credit growth forecast for 2026 is maintained at 14–16%.

The monetary conditions matrix — a composite tool introduced by the Central Bank drawing on international best practice from the Bank of Canada, Czech National Bank, and others — encompasses seven indicators: the real key rate, the real UZONIA rate, the liquidity position, average government securities yields, national currency deposit growth, national currency credit growth, and the deviation of inflation expectations from actual inflation. This matrix confirms that monetary conditions remained appropriately restrictive throughout Q1 2026.

Industrial Transformation: Structural Depth

The MPR contains dedicated analysis of Uzbekistan’s industrial evolution since 2019. Industry’s share in GDP has expanded from 23% in 2019 to 28% in 2026, with the manufacturing sector accounting for approximately 86% of total industrial output. Leading segments include metallurgy, food processing, and textiles, while higher value-added sub-sectors — electrical equipment, transport vehicles, fabricated metal products — are recording accelerating growth rates, reflecting the gradual deepening of domestic value chains.

Between 2021 and 2026, an average of 51% of total national investment was channelled into industry each year. The structure of investment has shifted in recent years, with energy infrastructure receiving a growing share alongside manufacturing. Credits to industry have displayed higher volatility than investment flows, suggesting that bank financing is predominantly directed toward working capital and short-term needs rather than long-term capacity creation.

The input-output analysis presented in the MPR confirms a structural transition from an agrarian model to one anchored in industry and services, with inter-sectoral linkages deepening particularly between manufacturing, transport, logistics, information technology, and financial services.

Rare Earth Elements: A Strategic Resource Dimension

A dedicated annex in the MPR examines the economic significance of rare earth elements (REE) in the context of global green technology transformation. The global REE oxide market reached approximately $6 billion in 2025, while the permanent magnets market stood at around $25 billion, underpinning trillions of dollars in high-technology manufacturing across electric vehicles, wind turbines, defence systems, and medical technology.

Global REE production in 2025 was approximately 390,000 tonnes, with China accounting for roughly 70% of supply — a concentration level that represents systemic risk for global supply chains. Global proven reserves exceed 85 million tonnes, with China holding 44 million tonnes and Brazil 21 million tonnes.

Uzbekistan possesses a mineral resource base of over 2,500 deposits with an estimated total value exceeding $3 trillion, including confirmed reserves of lithium, graphite, magnesium, tungsten, molybdenum, aluminium, tantalum and niobium. Over the next three years, 76 projects covering 28 types of rare and strategic minerals, with a combined value of $2.6 billion, are planned for implementation.

Currently Uzbekistan’s REE sector is import-dependent: REE and oxide imports in 2025 totalled approximately $190,000, and permanent magnet imports approximately $711,000. The MPR identifies localisation of REE extraction and processing as a pathway to reducing import dependence, expanding export revenue, diversifying industrial output, and developing regional production clusters. Global market projections to 2033 see the REE oxide market reaching $9.5 billion and permanent magnets $51 billion — indicating the strategic long-term significance of this sector.

Price Monitoring Infrastructure: narxtahlil.uz

The MPR presents the narxtahlil.uz price monitoring platform, an analytical tool developed by the Central Bank to enable high-frequency tracking of food prices across Uzbekistan’s regions and districts. The platform covers 30 essential food items, with data collected weekly by statistical officers at bazaars using CAPI (Computer-Assisted Personal Interviewing) technology via tablets.

The platform incorporates three functional modules: Price Analysis (weekly dynamics, regional breakdowns, price change rankings by district), Forecasts (3-month ahead projections using SARIMA seasonal time-series models), and Expectations (inflationary expectations and perceived inflation from the Central Bank’s monthly surveys). The platform serves as an early-warning system for inflationary shocks ahead of official monthly CPI releases, enabling more timely and data-informed monetary policy decisions. It is planned to extend coverage to non-food goods and services in future iterations.

Global Context and International Projections

The external environment remains complex. The IMF has revised its 2026 global growth forecast down to 3.1% (from 3.3% in January), while global inflation has been revised up by 0.6 p.p. to 4.4% for 2026. Energy prices are a central concern: oil prices rose 41.6% in March versus February, fertiliser prices rose 26.2%, and the FAO food price index rose 2.7% over the same period.

The IMF’s adverse scenario for global markets projects oil reaching around $100 per barrel (adverse) or $110–125 per barrel (severe), potentially reducing global growth to 2.5% or 2.1–2.2% respectively, while driving global inflation to 5.4% or 5.8–6.1%.

Among Uzbekistan’s main trading partners, China posted 5% GDP growth in Q1 2026, driven by industrial production and exports, with domestic demand remaining subdued. Russia’s economy showed mild deceleration in Q1, though private demand and government expenditure continue to support growth, and monetary policy is being gradually eased as inflation slows. Kazakhstan’s economy grew 3% in Q1, with commodity sector weakness offset by construction, manufacturing, and services.

The strengthening of major trading partner currencies — the Russian ruble, Chinese yuan, and Kazakhstani tenge — has helped support foreign currency supply in Uzbekistan’s domestic exchange market.

All four major international financial institutions have revised their Uzbekistan growth forecasts upward:

The IMF’s Article IV mission projects Uzbekistan’s inflation at 6.8% in 2026 and 5% in 2027, attributing the disinflationary trajectory to tight monetary policy, the gradual unwinding of energy tariff effects, exchange rate stability, and eventual moderation in oil price pressures. The ADB projects 6.5% inflation for 2026, citing monetary policy discipline, exchange rate stability, and improving supply-side conditions.

Conclusion

Uzbekistan’s macroeconomic performance in Q1 2026 reflects the coherence of a reform agenda sustained over several years. Record FDI inflows, broad-based GDP growth of 8.7%, a budget surplus, and deepening financial intermediation collectively point to an economy in confident structural transition. The Central Bank is executing a disciplined disinflationary policy — maintaining positive real interest rates and tight monetary conditions — while retaining the flexibility to respond to evolving data.

International confidence in Uzbekistan’s economic trajectory has not merely held — it has strengthened. Across all major multilateral institutions, growth forecasts have been revised upward simultaneously, a rare occurrence reflecting the quality and consistency of macroeconomic management. With inflation on a credible path toward the 5% target, a growing industrial base, expanding strategic mineral potential, and rising investment inflows, Uzbekistan is building the foundations of a more diversified, resilient, and internationally integrated economy.

Source: cbu.uz