The Central Bank of Uzbekistan decided to keep the main interest rate at 14% annually during its meeting on March 14. This decision was made considering the ongoing uncertainties in the economy regarding the balance of supply and demand, as well as pro-inflationary expectations. The aim is to ensure necessary monetary conditions to reduce inflation to the 5% target.
Inflation has decreased since the beginning of the year, with February seeing an 8.3% (year-on-year) rate. However, inflation in the services sector has accelerated in recent months due to increased demand and rising regulated prices for water, sewage, and waste disposal.
Inflation expectations among the public and entrepreneurs remain high and stable. It is anticipated that by the end of the year, inflation will range between 8-9%. There is uncertainty about changes in regulated prices and their impact on inflation expectations.
Despite some sectors experiencing a slowdown in production since the beginning of the year, overall economic growth indicators for the first quarter are expected to be relatively high. This is supported by strong budgetary expenditures in the past year and early this year, driving consumer activity.
The labor market shows high activity, particularly in the service sector, leading to higher wages. With steady price and income growth in services, investments in this sector are expected to increase, reflecting in consumer spending.
The Central Bank notes a significant rise in imports of machinery, equipment, energy resources, petroleum products, and black metals, laying the foundation for future production growth but also maintaining a trade balance deficit.
Achieving a balanced current account will depend on adhering to budget discipline, foreign investment flows, and the effectiveness of structural reforms to enhance export potential.
The Central Bank warns that relatively tight monetary conditions will persist in the coming quarters. It expects continued growth in savings activity, reflected in increased deposits in the national currency, surpassing credit growth rates significantly.
The increase in domestic and private sources in the banks' resource base affects market interest rates. While there have been no significant changes in average interest rates on loans in the national currency in recent months, adjustments in the monetary policy mechanism will pave the way for further interest rate cuts.
The Central Bank aims to continue its consistent monetary policy to achieve the 5% inflation target, focusing on the balance of supply and demand, inflation expectations, and regulated price dynamics. The next meeting to review the key interest rate is scheduled for April 25, 2024.
