The Central Bank of Uzbekistan has announced that it will keep its main interest rate at 14% per annum, according to a statement from the bank’s press service following a meeting of the Board on June 15.

The rate was previously set at 14% in March 2023, marking the first change in eight months from the previous rate of 15%.

The bank stated that the economy continues to experience a slowdown in inflation due to fundamental and seasonal factors. “The likelihood of sharply rising inflation is reduced if current trends persist until the end of the year,” according to Central Bank analysts.

“The transition of core inflation and inflation expectations to a sustained downward trajectory reinforces the possibility of a reduction in the key rate with moderately tight monetary conditions in the future,” the central bank said.

In May of this year, headline inflation in Uzbekistan slowed to 10.4% year-on-year. However, core inflation declined more slowly and amounted to 12.4%.

Easing of broad-based inflationary processes served to reduce the share of goods and services with price increases of more than 10% in the consumer basket to 50%. Meanwhile, this figure is still above the 30−40% share in 2020−2021.

“Fading out of last year’s high base effects, seasonal factors, and regulated prices remaining almost unchanged, as well as the relatively stable exchange rate of the national currency, were the main contributors to a slowdown in inflation,” the regulator said.

Analysts at the Central Bank of Uzbekistan have observed a gradual downward trend in the persistant components of inflation.

In May, the inflation expectations of the population for the next 12 months continued to decline, falling to 13.7%. Comparative stabilization of the economic situation was correspondingly reflected in a decrease in the expectations of businesses to 13.5%.

Alternative indicators for economic activity in April and May showed an upward trend, with volumes of interbank transactions and receipts from trade and paid services increasing by 1.6 and 1.4 times year-on-year respectively, indicating a high level of consumer activity in the economy.

“Despite global inflation slowing, largely owing to subsiding effects of last year’s upward pressure from world energy and commodity prices, formation of inflation above the target and ongoing upward risks in the service sector are causing global financial conditions to be tightened,” the Central Bank said.

In May this year, the weighted average interest rates on term deposits of individuals and legal entities in the national currency amounted to 20.8% and 17%, respectively, resulting in an increase in the total amount of term deposits by 1.5 times, including household deposits by 1.6 times, compared to the previous year.

The weighted average interest rates on loans in the national currency decreased slightly in May to 22.8%. Meanwhile, the growth of lending was mainly driven by an increase in retail loans. As of May the balance of retail loans rose 1.5 times compared with the corresponding period of the previous year.

Under the baseline macroeconomic scenario, inflation is expected to fall to 8.5−9.5% by the end of 2023, given disinflationary factors prevailing over pro-inflationary ones.

Maintenance of moderately tight monetary conditions and mitigation of the external impact on prices are considered as factors curbing inflation, according to Central Bank analysts. Fiscal expansion and its role in stimulating the economy is expected to remain strong this year. In the context of looser fiscal conditions and high credit growth, the easing of monetary conditions may put additional pressure on prices., the Central Bank of Uzbekistan stated.

Despite lower overall inflation in recent months, high price increases for some food products and services require current monetary conditions to be maintained, according to the regulator.

“A stable downward trajectory of core inflation and inflation expectations may allow for a reduction in the policy rate, while maintaining moderately tight monetary conditions in the economy,” analysts said.

The Central Bank of Uzbekistan announced that its next Board meeting to review the policy interest rate is scheduled for July 27.