Central Bank keeps refinancing rate at 16%

On July 20, at a meeting, the Board of the Central Bank decided to keep the refinancing rate unchanged at 16% per annum. This is reported on the website of the regulator.

The decision was made against the background of the continuing need to strengthen the dynamics of growth in the shares and volumes of long-term savings resources of banks in the conditions of forming the prerequisites for reorienting the sources of their credit resources from public funds to traditional – market ones.

The inflationary trend was formed under the influence of rising market prices for food products and services, while regulated prices for services and non-food products had a restraining effect.

Annual inflation by the end of June was 13.6%. At the same time, annual inflation during the last 5 months was fixed at 13.5-13.7%.

When conducting monetary policy and shaping its conditions, the Central Bank will proceed from the task of reducing inflation to a single digit in 2021. At the same time, the CB retains the basic projected inflation trajectory, which assumes its value at the level of 10-12% in 2020.

A further decrease in the level of inflation causes the use of a restrained approach in making expenditures from centralized sources, including for crediting the economy.

The current realities of the economy of Uzbekistan are peculiar. Accumulated investment “hunger” over the years and deferred socio-economic costs, coupled with the economy liberalization, have generated additional demand for financial and investment resources.

In the period under review, the negative balance of foreign trade amounted to $2.8 billion and is expected to increase by the end of the year.

It is assumed that the deficit of the foreign trade balance will be covered by the net primary and secondary incomes of the current account, as well as the financial account. It will not create significant pressure on the soum exchange rate.

A significant increase in aggregate demand in the economy may contribute to a slight acceleration in real GDP growth in 2019, compared with the initial forecast.

Over the past period of July, the weighted average interest rate of the interbank market increased up to 15.4%.

In the first half of the year, the credit investments of commercial banks increased by 23.4% (by 38.6 trillion soums), and their annual growth rates accelerated to 52.8%, exceeding the forecast figures by more than 2 times.

At the same time, loans in national currency since the beginning of the year increased by 22% or 16.3 trillion soums (37.4% or 16.2 trillion soums for the corresponding period of 2018), and in annual terms – by 54.0%.

Despite the persistence of inflation during the first half of the year near the lower boundary of the forecast corridor, some risks envisaged in the alternative scenario of the main directions of monetary policy for 2019 and in the period 2020–2021 still remain.

In particular, factors such as: phased liberalization of energy prices, abolition of VAT exemptions, possibility of revising customs tariffs and duties, accelerated lending rates, lack of inflationary expectations and their relatively high level may contribute to the emergence of additional inflationary pressure in the future.

Considering the likelihood of these risks occurring, the Central Bank maintains the previously announced inflation forecast for the end of 2019 unchanged at 13.5-15.5%.

At the same time, during the third quarter of 2019, a slight increase in annual inflation is possible above the current figures, caused by the upcoming increase in tariffs on energy resources, wages and pensions.

However, in the fourth quarter of 2019, the effect of the increase in regulated prices for annual inflation will decrease, which will contribute to its return to current values.

The Central Bank will closely monitor the state of the economy, internal and external factors of inflation and the financial stability of banks. In the case of decreased uncertainty, as well as the gradual disappearance of structural shocks, it will take appropriate measures.

The next meeting of the Board to revise the refinancing rate is scheduled for October 20.