Uzbekistan: Central bank keeps policy rate unchanged, adds hawkishness to message

CAUCASUS / CENTRAL ASIA - In Brief 14 Sep 2023 by Ivan Tchakarov

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The Central Bank of Uzbekistan kept the policy rate unchanged at 14.0 percent. This is the fourth consecutive decision to keep the policy rate at this level since the last 100bpt cut in Mar. After raising the refinancing rate by 300bpts to 17.0 percent in Mar 2022 due to elevated geopolitical risks and higher inflation, the central bank eased monetary policy twice in 2022 by 100bpts to 15.0 percent, and further to 14.0 percent in Mar’2023. The recent step depreciation of the sum and the decision to raise electricity and gas prices have now created a less welcoming backdrop for price growth. Downward pressure on the RUB has forced Uzbekistan to offset its influence on the real effective exchange rate via allowing a faster pace of depreciation against the USD. Inflation expectations have responded fast to these developments with households now seeing price growth at 14.2 percent in 12 months vs 13.3 percent in Jun. Similarly, inflation expectations of corporates rose from 13.2 percent in Jun to 14.4 percent in Aug. In addition, government decision to raise electricity and gas prices for the corporate sector by about 100 percent from Oct 1st will support price growth and complicate inflation developments. While the CPI fell from the peak of 12.3 percent YoY in Jul 2022 to 8.9 percent YoY in this Jul, it inched up to 9.0 percent in Aug, reflecting still robust underlying price momentum. The more structural reasons deriving from the strong relative price adjustment related to the 2017 opening of the economy need now to be augmented by the more cyclical considerations implied by the weaker currency and higher energy prices for domestic enterprises. The policy statement has r...