At its March 14 meeting, the Central Bank of Uzbekistan maintained the main interest rate at 14% annually.

The decision reflects ongoing economic uncertainties regarding supply-demand balance and inflationary expectations. These measures are aimed at fostering necessary monetary conditions to achieve the targeted 5% inflation rate.

Overall inflation has decreased since the beginning of the year to 8.3% (annualized) in February. However, inflation in the service sector has surged due to heightened demand and adjustments in regulated prices for utilities.

Furthermore, both the public and entrepreneurs continue to hold steady and elevated inflation expectations. Forecast suggests that year-end inflation will remain within the range of 8−9%.

In the forecast period, uncertainty persists regarding potential changes in regulated prices, such as electricity and gas tariffs, and their potential impact on inflation expectations.

Preliminary data indicates that key production indicators have shown stronger growth compared to January-February last year. However, the recent slowdown in certain sectors, notably foodstuffs (-10.6%), could potentially lead to short term supply-demand imbalances or increased pressure on imports.

Food production in January 2024 and previous years. Source: Statistics Agency.Food production in January 2024 and previous years. Source: Statistics Agency.

Overall, economic growth indicators are expected to remain relatively high by the end of the first quarter, with subsequent quarters anticipated to align with the basic forecast of 5.5−6%, as stated by the Central Bank.

Significant budget expenditures in the previous year and early this year are expected to bolster consumer activity in the coming quarters. However, remittance levels remaining in line with last year’s figures coupled with current growth rates of real incomes are unlikely to exert additional inflationary pressure on consumer demand in the future, according to the Central Bank.

The labor market is experiencing heightened activity, particularly considering the growth in demand for labor in the service sector, leading to increased wages within this industry.

Meanwhile, amid consistent price and income growth in the service sector, investments in these areas of the economy are expected to rise, along with their share in overall consumer spending.

Imports of machinery and equipment, energy resources, oil products, and ferrous metals continue to show strong growth. While this lays the groundwork for future production expansion, it also underscores the persistent trade balance deficit.

Achieving equilibrium in the current account balance hinges on adhering to established budget discipline (through government spending optimization), foreign investment inflows, and the effectiveness of structural reforms aimed at enhancing the economy’s export capacity.

The Central Bank cautioned that monetary conditions will likely remain tight in the coming quarters.

Furthermore, the Central Bank anticipates a continued uptick in savings activity, reflected in increased deposits in the national currency. Overall, deposit growth is expected to outpace lending growth significantly.

The increase in share of domestic and private sources in the resource base of banks has led to a stabilization in market interest rates, with no significant fluctuations observed in the weighted average interest rates on loans in the national currency in recent months.

Moreover, recent adjustments to the operational framework of monetary policy, including reductions in short-term funding costs, are expected to pave the way for further declines in loan interest rates.

The Central Bank intends to continue implementing a consistent monetary policy aimed at achieving the 5% inflation target. At the same time,emphasis will be placed on monitoring the balance of supply and demand in the economy, inflation expectations and the trajectory of regulated prices.

The next meeting of the Central Bank to review the key interest rate is scheduled for April 25, 2024.