Tashkent, Uzbekistan (UzDaily.com) — The International Monetary Fund (IMF) has recommended that Uzbekistan widen the fluctuation band of its exchange rate to make it more responsive to market conditions and to use it as a tool for absorbing external economic shocks. This recommendation was outlined in the official statement of the IMF mission that recently visited the country.

According to the report, Uzbekistan's authorities responded positively to the IMF's suggestions and expressed their readiness to incorporate them into future foreign exchange market regulation. The IMF particularly emphasized the importance of enhancing exchange rate flexibility to ensure economic resilience and the effectiveness of monetary policy.

The Fund reminded that the Central Bank should adhere to the principle of neutrality, meaning that purchases of gold from domestic producers should be offset by the sale of foreign currency within the same calendar year. Exceptions to this rule are only considered in cases of major disruptions, such as the COVID-19 pandemic or the initial two years of the war in Ukraine.

The report notes that in 2024, the Central Bank of Uzbekistan sold less foreign currency than required under the neutrality principle. Although the authorities claimed to have sterilized excess liquidity using alternative tools, the IMF warned that such measures come with costs, including rising interest expenses. Stricter adherence to the neutrality principle, according to the Fund's experts, would help preserve international currency reserves, prevent excess liquidity, strengthen investor and market confidence, avoid entrenched devaluation expectations, and reinforce the signaling function of monetary policy.

In 2024, the exchange rate of the US dollar to the Uzbek sum depreciated by only 4.7%, despite significant inflows of foreign currency. This relatively stable rate was partly the result of limited foreign exchange interventions by the Central Bank. However, the IMF stresses that a sustainable and managed exchange rate requires greater transparency and predictability in the regulator’s actions.

The IMF also recommended that clear criteria be established for when exceptions to the neutrality principle may apply, in order to reduce uncertainty and strengthen market expectations.

In conclusion, the Fund's experts believe that a gradual introduction of greater flexibility in the foreign exchange market, along with a firm commitment to the neutrality principle, will reinforce Uzbekistan’s macroeconomic stability and support the continued reform of its financial sector.