Tashkent, Uzbekistan (UzDaily.uz) — Uzbekistan’s Central Bank expects inflation to fall to its 5% target in the second half of 2027 and remain around that level in 2028–2029, according to a preliminary draft of its main monetary policy guidelines for 2027 and the 2028–2029 period.
Under the baseline scenario, economic growth is forecast at 7–7.5% in 2027 and around 6.5–7.5% in 2028–2029. The regulator previously projected growth of 6–7% for 2027. It expects the economy to gradually move towards its potential growth rate.
2026 economic conditions
Economic activity remains strong. Real GDP grew by 8.3% in January–September, and the Central Bank expects growth of around 8% for the full year.
Investment, rising household incomes and remittances, high government spending, and rapid growth in exports excluding gold have supported the expansion.
According to the Central Bank, aggregate demand is growing faster than the economy’s productive capacity, sustaining inflationary pressure. Annual inflation stood at 6.4% in September.
Core inflation has remained within a range of 5.5–5.7% since March, with no significant decline. Inflation expectations among households and businesses are easing but remain above actual inflation.
Prices for some fuels, as well as regulated goods and services, have risen more sharply than expected at the beginning of the year. Further increases in tariffs for liquefied petroleum gas for households, hot water and central heating are scheduled before the end of 2026. These changes are expected to add 0.8 percentage points to annual inflation.
Taking these factors into account, the Central Bank expects inflation to reach around 7% by the end of 2026, compared with its previous forecast of 6.5%. Core inflation is projected to remain at around 5.5%. The key rate remains at 14%.
Why inflation is expected to fall
The Central Bank says three conditions must be met for inflation to decline by more than two percentage points in 2027.
First, the impact of 2026 increases in energy and utility tariffs will drop out of the annual comparison. This alone is expected to reduce inflation by 0.8–0.9 percentage points.
Second, tight monetary conditions should help bring demand into balance and lower inflation expectations. Third, external price pressures should ease while domestic supply expands.
Core inflation is forecast to decline to 4–5% in 2027.
Monetary conditions are expected to remain tight throughout 2026–2027. The real UZONIA money market rate is projected at 6–7% in 2027. Once monetary conditions enter a neutral phase, it is expected to fall to 4–5%.
The Central Bank stressed that decisions to ease policy would depend not on calendar dates but on whether inflation approaches the target sustainably. The future path of the key rate has not been predetermined. If inflationary pressures intensify, tight monetary conditions may remain in place for longer.
Assumptions underlying the forecast
The baseline scenario assumes that the conflict in the Middle East will move out of its active phase and oil prices will gradually decline. The US Energy Information Administration (EIA) forecasts, cited by the Central Bank, indicate that the average price of Brent crude will fall from around US$96 per barrel in 2026 to US$84 in 2027.
The Central Bank estimates that the average price of gold will reach around US$4,510 per troy ounce in 2027, US$4,580 in 2028 and US$4,650 in 2029.
The broad fiscal deficit is expected to remain at around 3% of GDP. The consolidated budget expenditure share of GDP is projected to decline from 29% in 2026 to 26% in 2028.
The baseline scenario also assumes that the reform of regulated prices will be completed as announced and that Uzbekistan will join the World Trade Organisation in 2027.
Real investment growth is forecast at 12–14% in 2027 and 10–12% in 2028–2029. The loan portfolio is expected to expand at the same rates. Real household incomes are projected to increase by 7.5–8% annually.
Alternative scenarios
The Central Bank has modelled four potential risks.
A significant depreciation of the currencies of Uzbekistan’s main trading partners could reduce remittances and weaken the soum. In this scenario, inflation would be 0.8–1 percentage point higher than in the baseline forecast, while economic growth would be 0.1–0.2 percentage points lower.
A renewed escalation in the Middle East and restrictions on shipping through the Strait of Hormuz could push oil prices up by 25–30%. Inflation would then be 0.3–0.5 percentage points higher, while growth would be 0.3–0.4 percentage points lower.
A stronger El Niño phenomenon could raise the FAO Food Price Index in 2027 by 8–10% above the baseline forecast. This would add 0.2–0.4 percentage points to inflation and reduce economic growth by 0.05–0.15 percentage points.
The fourth scenario concerns the entry of foreign banks and faster privatisation of banks with state ownership. Increased competition could accelerate lending, pushing loan portfolio growth in 2027 5–6 percentage points above the baseline scenario. Inflation would be 0.6–0.9 percentage points higher, while economic growth would increase by 0.25–0.35 percentage points.
In the oil and food price scenarios, the Central Bank does not rule out a later start to monetary easing. In the scenarios involving depreciation of trading partners’ currencies and a credit boom, monetary conditions could be tighter than under the baseline forecast.
Changes to monetary policy instruments
In 2027–2029, the Central Bank plans to develop a Monetary Policy Strategy and a separate roadmap for its implementation. Similar documents will be prepared for monetary policy communications.
Since July 2026, the regulator’s main liquidity management operations have been conducted on a collateralised basis. These include seven-day reverse repo auctions using Central Bank bonds at the key rate.
The regulator will assess the possibility of holding these auctions twice a week and review the current interest rate corridor of plus or minus two percentage points. Unified eligibility criteria will be introduced for collateral assets.
A regulation governing money market operations in accordance with Sharia principles will be prepared for Islamic banks. The Central Bank will also study the possibility of establishing an institution to issue Islamic bonds.
The regulator’s forecasting model will be upgraded, and its models will gradually be transferred to Python. Separate methodologies will be developed to assess the neutral real interest rate and the neutral level of dollarisation.
Over-the-counter trading will be introduced in the money market. The Central Bank will also promote loans and deposits with floating rates linked to UZONIA.
In cooperation with the Global Finance & Technology Network (GFTN), the Central Bank has begun work on a wholesale central bank digital currency. The project is scheduled to run for 24 months, with a pilot planned from the second quarter of 2027 to the first quarter of 2028.
A specialised institution to hedge currency and interest rate risks is planned for companies operating in international markets. Local master agreements for derivatives will be developed in line with ISDA and GMRA standards.
In 2027, the Central Bank Board will review the key rate eight times: on 3 February, 24 March, 5 May, 23 June, 4 August, 22 September, 3 November and 22 December.
Press conferences with the bank’s management will follow the meetings on 3 February, 5 May, 4 August and 3 November.
