Uzbekistan's Central Bank has observed a concerning trend of the exchange rate's impact on inflation expectations among both the population and business, according to a recent press release.
Although inflation slowed to 9% YoY in June, it remains higher than the average annual rate, indicating that fundamental demand factors still play a significant role in price formation.
Core inflation, which excludes administrative and seasonal effects on prices, declined more slowly than anticipated to 11.3% in June, widening the gap between basic and general inflation. Furthermore, inflation expectations in June decreased to 13.5%, with an increasing number of respondents citing currency exchange rate changes, wage increases, and benefits as the primary factors of their expectations.
Despite the decrease in inflation and inflation expectations, the Central Bank has decided to maintain the core rate at 14% per annum, citing persistent price pressure.The decision to uphold current annual interest rate was made to ensure that inflation stays within the projected range until the year-end.
The first half of the year saw economic growth of 5.6%, supported by faster credit growth and increased budget spending.
The Central Bank also notes a 1.7-fold increase in lending to the population last month and a reduction in dollarization of deposits. To ensure price stability in the medium term, the Central Bank recommends implementing monetary and fiscal policies in a mutually agreed manner with a budget deficit within the established parameters.
However, lower inflation expectations increase the likelihood of a lower core rate in the near term, with the inflation forecast remaining at 8.5-9% by year-end.
The fundamental principles of supply and demand significantly impact the pricing of goods and services. As of late, the consumer market has been experiencing a shortage in supply, leading to a notable increase in prices for numerous items, surpassing 10%.
The Central Bank Board will meet again on September 14, 2023, to review the key rate.
The Central Banks of Tajikistan, Kazakhstan, and Kyrgyzstan have also made decisions regarding their respective interest rates.
In June 2023, Tajikistan's Central Bank announced a steady interest rate of 10%, with a possible range of 4.8% to 18.06%.
Similarly, in July 2023, Kazakhstan's regulator maintained a stable interest rate of 16.75%, with a maximum rate of 300% and a minimum of 5.5%.
Finally, Kyrgyzstan's Central Bank decided to keep its interest rate at 13% in June 2023, with a maximum rate of 13.73% and a minimum of 2.64%.
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