The central bank set the key rate at 14%

A meeting of the Board of the Central Bank of the Republic of Uzbekistan was held today, 16 March.  In the meeting, the main rate was reduced by 1 percentage point and set at the annual level of 14 percent.  This was reported by the Press Service of the Central Bank.

“Inflation in the economy has reached its highest point and is beginning to fall.  At the same time, there are signals about the negative impact of strict external financial conditions on domestic economic activity,” the report said.

The reduction of the main rate by 1 percentage point allows to completely remove the additional burden imposed by the increase of the interest rate for risks in March of last year.

In this case, the basic rate at the annual level of 14 percent ensures the preservation of relatively strict monetary and credit conditions in the downward dynamics of the inflation forecast (8.5-9.5 percent).

Between January-February of this year, the annual inflation rate decreased slightly to 12.2 percent, and confidence is increasing that there will be a significant decrease in the next quarter.  According to observations, in the first two weeks of March, the prices of basic food products were relatively balanced in the consumer markets, and after the increase in January, it was observed that the dynamics of the decrease changed.

It is noted that the basic inflation indicator calculated without taking into account the changes in the prices of certain goods and services with seasonal and administrative effects, the growth trend that started from the second quarter of last year has turned into a downward trend from the beginning of this year.  Changed and slowed down from 13.8 percent in December to 13.3 percent in January and 13.2 percent in February.

According to the results of the February survey, it was observed that the inflation expectations for the next 12 months have decreased significantly compared to the results of January, which, together with the dynamics of core inflation, creates conditions for the stabilization of prices in the coming months.

A certain level of risks and uncertainties remain in external economic conditions.  In February, global inflation continued to slow, mainly due to lower prices in the energy and food sectors.

In addition to the strict positions of the leading central banks on reducing inflation, the increased demand for safe assets against the background of the observed situation in the international banking sector is increasing the volatility in the financial and commodity markets.

The prices and expectations that are forming in the world food markets create the basis for favorable conditions for goods imported to Uzbekistan.  This, in turn, serves as a factor that moderates the increasing effects of import inflation in food groups.

According to preliminary data, from January-February 2023, the impact of short-term risks was partially manifested in domestic economic conditions.  At the end of January, there was a slowdown in the growth rates of retail trade, industrial production and construction work.

Although growth in the service sector has slowed down compared to the same period last year, growth rates in this sector are higher than in other sectors.  Taking into account the temporary nature of the risks and the measures taken in time, it is expected that economic activity will balance and the industry indicators will recover by the end of the first half of the year.

In the first months of this year, the index of monetary conditions was formed in a fixed phase due to the dynamics of the real effective exchange rate and real interest rates.

Although the rate of Uzonia in the money market is unchanged at 14 percent, the significant increase in the volume of operations and the redistribution of short-term resources by banks indicate that the importance of this market is increasing.

The next meeting of the central bank board to review the key rate is scheduled for 27 April 2023.