Uzbek Central Bank Explains Decision to Keep Rate at 14%

Tashkent, Uzbekistan (UzDaily.uz) — Uzbekistan's Central Bank considered only the option of keeping its key interest rate at 14% per annum at its 29 July meeting, Samigjon Inogamov, Director of the Central Bank's Monetary Policy Department, said at a press conference.

According to Inogamov, the regulator based its decision on an assessment of consumer price dynamics, core inflation, inflation expectations and updated macroeconomic forecasts.

Although headline inflation has continued to slow since the beginning of the year and inflation expectations have declined, factors that could accelerate price growth remain in the economy, he said.

Inogamov said economic activity remains strong, while a positive output gap requires monetary policy to remain tight. For that reason, a reduction in the key interest rate was not considered at the July meeting.

"The reason is that pro-inflationary factors and risks are expected to remain dominant over the coming quarters. Given the balance of risks, a proposal to reduce the key interest rate was not considered," the Central Bank official said.

The regulator identified a sustained decline in core inflation as one of the key conditions for possible monetary easing. Core inflation currently stands at 5.7% and has remained virtually unchanged since the start of the year.

Another prerequisite is a further decline in inflation expectations among households and businesses. According to Inogamov, although expectations have fallen in recent months, they remain above the desired level.

The Central Bank official also said that the size of any future interest rate adjustment would depend on inflation trends and overall economic conditions.

He noted that international practice allows for both larger changes and smaller adjustments, including moves of 0.25 percentage points.

The Central Bank also commented on its forecast of a slight acceleration in inflation from the second quarter of 2028.

According to Inogamov, one of the reasons is the increase in energy tariffs in June and the possible secondary effects of rising production and transport costs, which could place additional upward pressure on prices.

Responding to a question about the exchange rate's role in achieving the Central Bank's 5% inflation target, Inogamov said the regulator does not target a specific exchange rate for the national currency.

He noted that after Uzbekistan adopted a floating exchange rate regime in 2017, the free formation of the exchange rate was further expanded last year.