Central Bank of Uzbekistan offers no surprises, keeps policy rate unchanged at 14.0 percent

CAUCASUS / CENTRAL ASIA - In Brief 14 Dec 2023 by Ivan Tchakarov
The Central Bank kept the policy rate at 14.0 percent as expected. There was no surprise in this decision given the evolution of price growth, which has been the highest in our CCA space, and the moderately hawkish message that monetary authorities have been consistently sending to the market. The accompanying message maintained this broader tone, underlying existing risks to inflation dynamics, including because of robust GDP growth and a host of cyclical considerations that we describe below. Inflation will remain at elevated levels in 2024 due to a variety of structural and cyclical reasons. Favorable base and seasonal factors have contributed to bringing headline inflation down a bit from the peak of 12.3 percent YoY in Jul 2022 to a still high 8.7 percent YoY this Nov. We explained recently why large relative price adjustments in the aftermath of the 2017 opening of the economy have played a key role in understanding why Uzbekistan has claimed the title of having the highest rate of price growth in the region. In our estimate, this process will continue to exert significant upward pressure on inflation at least for a couple of more years. In addition, the government announced that electricity prices for corporates would double from Oct 1st while those for households would increase from Nov 1st. We, therefore, forecast average inflation to inch down only marginally from 10.0 percent in 2023 to 9.0 percent in 2024. The central bank recently released some preliminary information regarding its 2024-2026 policy guidelines for, which pushed the achievement of the CPI target further into the future. Critically, the central bank has also argued that ongoing structural cha...

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