Central Bank head deems interest rate hike premature amid inflation monitoring

Speaking in an interview with Uzreport TV, the head of the regulator emphasized the need for a cautious approach as the bank monitors the indirect effects of global tensions, including the conflict in the Middle East, on domestic prices.

For the current year, the Central Bank has set an ambitious target to reduce inflation to 6.5%. This follows a slightly adjusted forecast from the International Monetary Fund, which now expects inflation in Uzbekistan to settle at 6.8%, up from its previous estimate of 6.5%. Despite these pressures, the Chairman believes the current monetary conditions are sufficiently restrictive to manage the situation without further tightening at this stage.

Maintaining a delicate balance between price stability and economic expansion remains a priority for the regulator. The Chairman noted that while inflation is a primary concern, the importance of economic growth cannot be overstated, as it serves as the foundation for resolving broader economic challenges. However, he did not rule out future adjustments to monetary policy should pro-inflationary risks persist or intensify in the coming months.

A key element of the current strategy is the preservation of a free-floating exchange rate regime. According to the Central Bank, exchange rate flexibility serves as a critical buffer that helps soften the impact of external shocks on the domestic economy. This aligns with recent recommendations from the International Monetary Fund, which encouraged greater currency flexibility to enhance the effectiveness of monetary policy transmission.

At its most recent policy meeting in March, the Central Bank opted to keep the main rate unchanged at 14% per annum. While the regulator acknowledged an acceleration in inflationary processes and identified several external risks, the decision to hold the rate reflects a wait-and-see approach. The bank remains prepared to further tighten credit conditions only if the pace of disinflation shows significant signs of slowing down.