Uzbekistan’s central bank left its benchmark refinancing rate unchanged at 16.0 percent but said it would undertake a series of macro prudential measures to restrain lending by banks, eliminate imbalances in the financial markets and ensure overall financial stability.
The Central Bank of the Republic of Uzbekistan (CBU), which has maintained its rate since raising it by 200 basis points in September 2018, described its decision as a “prudent approach” to monetary policy that takes into account the existing realities of the economy and ensures stable prices and financial stability.
Inflation in Uzbekistan has been accelerating this year and rose to a higher-than-forecast 16.5 percent in August due to an acceleration in investment loans, government spending, a devaluation of the sum along with higher regulated prices of electricity and gas, and the indexation of wages and pensions.
In 2018 inflation in Uzbekistan averaged 14.3 percent, steady from 2017’s 14.4 percent.
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But CBU said in a statement from Oct. 19 that inflation eased to 16.0 percent in September, confirming that some of the price rises were temporary in nature, and inflation is expected to ease toward 15.5 percent – the upper boundary of its 13.5-15.5 percent forecast corridor for 2019 – as one-time effects slowly fade.
In October, however, inflation is expected to rise temporarily due to the abolition of VAT exemptions on a number of imported goods as well as the liberalization of prices for flour and bread.
In July the central bank said it was still assuming inflation would ease to 10-12 percent in 2020 and then decelerate further to single digits in 2021.
Uzbekistan’s economy has been growing rapidly this year, boosted by banks’ lending and government spending, with gross domestic product up 5.8 percent year-on-year in the second quarter, up from 5.3 percent in the first quarter.
Lending by banks rose 38.3 percent in the first 9 months of the year, including loans in the national currency, which were up 34.3 percent, down from 61.1 percent in the same 2018 period, partly due to a gradual liberalization of interest rates in the country and the simultaneous improvement in lending conditions and mechanism, which are enhancing the efficiency of the central bank’s transmission mechanism.
But there was also a rise in the demand for foreign currency, resulting in a faster devaluation of the sum, in particular in July and August. In the second half of August the sum fell sharply against the U.S. dollar and was on Friday trading around 9,452 to the U.S. dollar, down 7.9 percent from Aug. 14 and down 11.8 percent since the start of this year.
Uzbekistan’s economy is in the midst of major economic reforms begun in 2016, with reforms so far including liberalization of foreign exchange, tax reform and an upgrade in the quality and availability of economic statistics.
The liberalization has unleashed strong demand for investments that have been unmet for years, boosting the trade deficit which the CBU expects will be covered by the current and financial account and thus not create significant pressures on the sum’s exchange rate.
In April CBU undertook three major projects to upgrade the payment system that should allow the interbank payment system to function 24 hours, 7 days a week in contrast to the current system which doesn’t permit financial transactions after 5 p.m. local time and on the weekends and holidays.